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JR.  E  M  ARKS 


CURRENCY  AND  BANKING; 


HAVING  REFERENCE  TO  THE  PRESENT  DERANGEMENT 

OF  THE   CIRCULATING   MEDIUM   IN  THE 

UNITED  STATES. 


BY  NATHAN   APPLETON 


THIRD     EDITION. 

WITH   AN  APPENDIX. 


BOSTON: 
1857. 

J.    H.    EASTBUllN'S    PRESS. 


. 

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1/11N 


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A7 


V  RE  FA  (!  E.  /<£       7 

MA/A/ 


ISTo  apology  would  seem  to  be  necessary  for  publishing  an 
essay  on  Currency  and  Banking.  The  derangement  of  our  cur 
rency  has  brought  the  subject  home  to  every  man's  business  and 
bosom  with  an  intensity  which  has  made  it  the  engrossing  topic 
of  the  country.  It  is  however  a  subject  of  great  difficulty ;  as 
a  science  it  is  abstruse  and  recondite.  In  practical  application, 
we  find  every  possible  variety  of  opinion ;  the  great  obstacle  to 
the  restoration  of  a  sound  currency  is  believed  to  be  an  errone 
ous  public  opinion. — In  the  hopes  of  doing  something  in  re 
forming  erroneous  views  the  present  slight  and  hasty  sketch  is 
offered.  The  object  is  to  present  those  principles  which  have 
the  sanction  of  the  best  writers  on  the  subject  and  which  all 
experience  is  believed  to  confirm,  in  a  form  to  be  applied  to  the 
present  condition  of  the  country. 

Unfortunately  the  subject  has  been  connected  with  the  party 
politics  of  the  day.  Nothing  can  be  more  unfavorable  to  the 
development  of  truth,  on  questions  in  political  economy,  than 
such  a  connection.  A  good  deal  which  is  false,  with  some  ad 
mixture  of  truth,  has  been  put  forward  by  political  partisans  on 
either  side.  As  it  is  the  wish  of  the  writer  that  the  subject 
should  be  discussed  011  its  own  merits  and  free  from  such  con 
taminating  connection,  he  has  avoided  as  much  as  possible  all 
reference  to  the  political  parties  of  the  day. 
BOSTON,  MAY,  1841. 


Tnis  pamphlet  was  published  in  1841,  in  two  editions,  which  were 
soon  exhausted.  It  has  been  many  years  out  of  print,  and  frequently  called 
for;  the  present  state  of  the  currency  seems  to  render  its  republication  ap 
propriate  to  the  times. 


BANKS  AND  BANKING. 


CIRCULATING    MEDIUM. 

THE  general  consent  of  mankind  has  established  gold 
and  silver  as  the  common  measure  of  the  value  of  all 
other  commodities,  and  has  given  them,  in  the  state  of 
coin,  the  name  of  money.  Some  nations  making  use 
of  one  of  these  metals,  some  of  the  other,  and  some  of 
hoth. 

Coinage  may  be  considered  as  merely  the  affixing 
a  certificate  of  the  government  to  the  quantity  of  pure 
silver  or  gold  contained  in  each  coin  respectively,  on 
which  alone  its  value  depends.  The  fitness  of  gold 
and  silver  for  the  medium  of  exchanging  all  other  com 
modities,  arises  from  their  containing  much  value  in 
small  bulk,  from  the  difficulty  of  their  quantity  being 
materially  increased,  from  their  easy  divisibility  and 
their  indestructibility. 

It  is  usual  to  consider  these  precious  metals  as  the 
common  measure  of  other  property ;  but  they  have 
another  quality  essential  to  their  performance  of  the 
function  of  money.  Their  intrinsic  value  makes  them 
also  the  common  equivalent.  They  not  only  measure 
the  value  of  other  commodities,  they  replace  it  ;  this  is 
an  important  distinction. 


The  laws  of  the  United  States  establish  the  coinage 
and  currency  of  both  metals.  By  the  law  of  1792,  gold 
was  estimated  to  be  worth  fifteen  times  its  weight  in 
silver,  which  was,  at  that  time  perhaps,  an  accurate 
estimate  of  the  actual  relative  value  of  the  two  metals. 
Since  that  period  a  decided  and  permanent  change  has 
taken  place  in  that  respect  in  favor  of  gold ;  and  by 
the  law  passed  in  1834,  our  gold  coinage  and  several 
foreign  coins  are  made  current  in  the  proportion  of  six 
teen  times  their  weight  of  silver. 

The  effect  of  this  law  is,  to  make  an  important  change 
in  our  metallic  currency.  Previous  to  its  passage,  our 
whole  currency  consisted  of  silver  ;  gold  was  merely 
merchandise,  worth  about  five  or  six  per  cent,  above  its 
legal  valuation.  Since  1834,  gold  has  been  constantly 
displacing  silver,  and  is  becoming  the  basis  of  our  bank 
circulation. 

Banks  are  establishments  for  the  purpose  of  carrying 
on  a  trade  or  traffic  in  money,  or  in  contracts  or  obli 
gations  for  the  payment  of  money. 

Bank  notes  are  promises  to  pay  on  demand  a  given 
quantity  of  coin ;  they  are  promises  to  pay  money,  but 
they  are  not  money  in  themselves.  This  is  an  import 
ant  distinction,  and  the  not  making  it  is  the  source  of 
most  of  the  popular  errors  on  the  subject  of  currency. 

Bank  notes,  payable  in  coin  on  demand,  in  the  com 
mon  transactions  between  man  and  man,  are  generally 
preferred  to  the  coin  which  they  represent.  They  thus 
perform  all  the  functions  of  money,  and  in  common 
parlance  are  called  money.  But  there  is  an  important 
distinction,  and  in  strictness  bank  notes  can  with  no 
propriety  be  called  money.  A  bank  note  gives  a  power 
to  command  the  coin,  the  money  which  it  promises,  at 
the  pleasure  of  the  holder.  This  power  is  more  con 
venient,  therefore  more  valuable  to  the  possessor,  than 


the  thing,  the  coin  itself.  This  preference  is  the  true 
basis  of  hank  circulation.  It  is  founded  in  the  nature 
of  things.  It  is  essential,  however,  that  this  power 
should  be  real ;  that  it  should  exist  in  fact ;  that  the 
coin  can  be  had  on  asking  for.  It  is  not,  perhaps,  sur 
prising,  that  superficial  observers,  seeing  the  facility 
with  which  bank  notes  perform  all  the  functions  of 
money,  without  this  power  to  command  coin  being  put 
to  the  test,  should  become  insensible  to  its  existence, 
or  disbelievers  in  its  necessity.  They  see  a  faith  in  this 
power  supersede  the  use  of  the  power,  and  sanguine 
and  visionary  spirits  are  led  to  believe  that  the  same 
faith  may  be  built  on  some  other  basis,  on  something 
else  less  expensive  than  gold  and  silver.  This  is  doubt 
less  the  origin  of  the  various  projects  for  furnishing  a 
currency  of  paper  not  convertible  into  coin,  to  which 
every  age  gives  rise,  and  which  always  find  favor  with 
the  debtor  class  of  mankind,  but  which  are  sure  to  end 
in  chagrin  and  disappointment. 

Bank  credits,  commonly  called  deposits,  are  of  pre 
cisely  the  same  general  character  as  bank  notes ;  they 
arise  from  the  deposit  of  coin  or  bank  notes,  from  the 
collection  of  individual  notes,  or  bills  of  exchange,  or 
from  discounts  made  by  the  bank  for  the  parties  to 
whose  credit  they  are  placed.  However  originating, 
the  bank  admits  them  to  be  a  debt  payable  in  gold  and 
silver  on  demand. 

They  remain  to  the  credit  of  the  party  owning  them, 
because  a  bank  credit,  like  a  bank  note  possessing  the. 
power  of  commanding  the  coin  at  any  moment,  is 
preferable  to  the  possession  of  it  in  specie.  Bank 
notes  and  bank  credits  are  convertible  into  each  other 
at  the  pleasure  of  the  possessor.  They  are  essentially 
the  same.  It  has  been  sometimes  made  a  question 
whether  bank  credits  can  properly  be  termed  currency. 


8 

It  is  a  question  about  words,  and  of  little  importance, 
according  to  the  sense  in  which  the  term  currency  is 
used.  Bank  credits  consist  chiefly  of  the  money  kept 
on  hand  by  merchants  and  others  for  their  daily  use. 
Were  there  no  banks,  it  would  be  kept  at  home  in 
iron  chests ;  and  if  so  kept,  whether  in  coin  or  bank 
notes,  the  question  might  be  equally  raised,  whether 
these  deposits  in  large  masses  should  be  said  to  be  in 
circulation. 

There  is  but  one  basis  for  a  sound  paper  currency, 
the  actual  power  to  command  the  coin.  It  is  true,  no 
paper  can  circulate  without  confidence,  but  it  is  all 
important  that  this  confidence  should  rest  on  a  solid 
foundation.  It  is  best  it  should  be  frequently  put  to 
the  test.  With  us,  it  is  not  the  want  of  confidence 
which  has  caused  the  derangement  of  our  currency, 
but,  on  the  contrary,  the  prolific  cause  has  been,  the 
giving  confidence  where  it  was  not  warranted,  where  it 
was  not  due. 

Preference  is  then  the  only  basis  of  a  sound  paper 
circulation,  and  it  is  not  difficult  to  perceive  the 
grounds  on  which  this  preference  rests ;  facility  of 
counting,  facility  of  transportation  or  transmission,  and 
security  against  loss  or  robbery.  To  these  general 
advantages  must  be  added  a  full  assurance  that  the 
money  will  be  paid  when  wanted  and  where  wanted. 

The  place  where  a  bank  note  is   payable  is  of  the 
utmost  importance  in  order  to  secure  its  general  circu- 
-  latioii  at  par  with  specie.    That  place  must  be  the  com 
mercial  centre  of  the  district  through  which   it  is  to 
circulate. 

The  constant  demand  for  remittances  to  this  central 
point,  will  give  to  bank  notes  payable  there,  a  constant 
equality  with  or  preference  over  specie,  through  all  the 
region  drawing  their  supplies  from  that  centre.  Thus, 


a  bank  note  payable  in  Boston,  will  have  a  natural  cir 
culation  through  all  that  part  of  New  England  drawing 
their  supplies  from  thence ;  but  the  moment  the  line  is 
passed  into  the  district  drawing  their  supplies  from 
New  York,  bank  notes  payable  in  that  city,  can  alone 
supply  a  pure  circulation,  and  so  of  the  other  great 
cities.  Large  towns  or  cities  in  the  interior  have  a  cer 
tain  limited  circle  of  their  own,  but  for  general  circula 
tion,  bank  notes  must  be  payable  in  the  great  commer 
cial  cities. 

The  currency  of  depreciated  paper,  issued  by  banks 
paying  specie,  is    owing  to   a  departure  from   correct 
principles  in  this  particular.     The  bank  note  is  not 
payable  at  the  place  where  the  money  is  wanted.     Pre 
vious   to    1824:,    the    currency   of    Boston    and    New 
England  consisted   mostly  of  country  bank  notes,  sub 
ject  to  a  discount  varying  at  different  times,  but  gen 
erally  about  one  per  cent.     In  1824,  what  is  called  the 
Suffolk  bank  system,  was  adopted,  by  which  the  bills 
of  all  New  England  banks  are  virtually  redeemable  in 
Boston  at  par.     The  system  is  this:    Certain  banks  in 
Boston  have  contributed  a  sum  agreed  on,  to  a  common 
fund,  and  in  consideration  of  the  use  of  that  fund,  one 
of  them,  the  Suffolk,  undertakes  to  receive  all  bills   of 
New  England  banks  as  cash,  and  collect  them  from  the 
country  banks.     The  mode  of  doing  it  is  as  follows  : 
The  country  banks  are  invited  to  keep  a  fund  in  deposit 
at  the  Suffolk  bank  for  the  redemption  of  their   bills. 
If  they  decline,  the  bills  are  sent  home  for  payment,  in 
which  case  nothing  but  a  legal  payment  in  coin  will  be 
received.     The  trouble  attending  this  mode  of  payment 
soon  induces  the  bank  to  yield  to  its  true  interest  and 
keep  up  the  deposit,  since  it   can  by  doing  so,  keep  a 
larger  amount   of   bills  in  circulation  than    it  would 
otherwise  be  safe  to  attempt.     Under  this  system  the 


10 

whole  currency,  centering  at  Boston,  is  convertible  at 
pleasure  into  legal  coin  without  any  loss  whatever — 
a  state  of  things  which  does  not  probably  exist  in  any 
other  considerable  city. 

The  State  of  New  York  is  now  suffering  under  a 
currency  of  country  bank  notes,  depreciated  in  a  small 
degree  from  being  payable  at  places  where  the  money  is 
not  generally  wanted.  It  is  impossible  that  bank  notes 
payable  at  Buffalo  can  be  preferred  to  specie  in  the  city 
of  New  York ;  but  it  will  be  perceived  at  once  that 
bank  notes  payable  in  the  city  of  New  York  will  be 
preferred  to  specie,  not  only  in  that  city,  but  in  Buffalo 
also,  and  throughout  the  whole  immense  region  of 
which  New  York  is  the  commercial  centre.  The  legis 
lature  of  New  York  has  attempted  a  partial  remedy  to 
this  evil,  by  compelling  the  country  banks  to  take  up 
their  notes  either  in  Albany,  or  the  city  of  New  York, 
at  a  discount  of  one  half  of  one  per  cent.  To  be  a  com 
plete  remedy  the  notes  must  be  made  payable  in  the 
city  of  New  York  at  par.  Nothing  else  will  make  the 
currency  of  that  State  what  it  ought  to  be.  [The  State 
of  New  York  has  also  adopted  a  system  of  requiring  a 
deposit  of  stocks  with  a  State  officer  as  a  security  for 
the  payment  of  bank  notes.  The  great  objection  to 
this  system  is  that  it  requires  a  double  capital,  one  to 
purchase  the  stocks  and  another  to  redeem  the  circula 
tion  of  the  bank.] 

This  circulation  of  bank  notes  payable  at  incon 
venient  places  is  common  to  most  of  the  commercial 
cities  in  a  greater  or  less  degree.  All  experience  shows, 
in  the  earlier  periods  of  banking,  a  tendency  to  a  false 
public  opinion  in  this  particular,  in  every  community. 
The  note  of  a  bank  considered  safe,  situated  in  the 
country,  is  thought  to  be  equally  entitled  to  circulation 
with  that  of  the  city  bank.  This  opinion  is  generally 


11 

sustained  by  a  powerful  country  interest  in  favor  of 
country  banks.  The  true  ground  of  bank  circulation, 
preference  over  specie,  is  not  understood.  Shopkeepers 
and  small  dealers  think  it  better  to  raise  the  price  of 
their  goods  rather  than  turn  away  a  customer  who 
offers  them  any  bank  note.  The  class  of  money 
brokers  becomes  necessary  in  this  state  of  things,  and 
is  supported  out  of  this  false  state  of  the  currency.  The 
most  perfect  remedy  is  in  the  correction  of  public 
opinion,  which  would  induce  every  individual  to  refuse 
to  receive  as  money,  any  bank  note  not  exchangeable 
for  gold  or  silver  without  loss.  It  is  in  the  power  of 
the  banks,  however,  of  every  commercial  city,  to  regu 
late  its  currency.  By  receiving  the  notes  of  country 
banks  on  better  terms  than  brokers  can  afford  to  do, 
and  enforcing  payment  rigorously,  they  can  make  it  for 
the  interest  of  all  sound  banks  to  make  an  arrangement 
something  like  the  Suffolk  system. 

Banks  are  highly  useful  institutions,  properly  man 
aged  and  properly  understood;  but  like  other  good 
things,  they  are  liable  to  abuse.  Many  abuses  are 
sustained  by  erroneous  opinions  on  the  subject. 

To  be  useful,  a  bank  must  be  founded  on  solid  cap 
ital.  The  object  must  be  the  useful  employment  of 
capital.  There  is  no  other  sufficient  ground  of  assu 
rance  that  the  money  will  be  paid  when  wanted.  Banks 
are  dealers  in  money.  They  should  pay  their  notes 
whenever  the  convenience  of  the  holder  leads  him 
to  demand  payment,  with  the  utmost  readiness. 
They  should  leave  their  circulation  to  depend  on 
its  true  basis,  a  preference,  and  treat  a  preference 
for  specie  with  the  same  courtesy  as  one  for  notes. 
It  is  true  that  a  bank  derives  a  profit  from  its  circula 
tion ;  but  the  bank  becomes  an  abuse  whenever  it 
opposes  any  obstacle  to  the  ready  conversion  of  its 


12 

notes  or  credits  into  coin.  That  obstacle  may  consist 
in  viewing  the  party  making  the  demand  in  an  un 
friendly  light.  It  is  not  uncommon  to  make  a  dis 
tinction  in  regard  to  brokers.  It  is  sometimes  attempt 
ed  to  cast  an  odium  upon  them  as  the  cause  of  the 
inconvenient  demands  made  upon  needy  banks.  All 
this  is  false.  There  is  little  employment  for  money 
brokers  where  banking  is  in  a  sound  state.  Bad  bank 
ing  and  depreciated  currencies  bring  brokers  into  ex 
istence.  They  are  not  cause,  but  effect.  Their  voca 
tion  is  wholesome.  They  are  the  mere  agents  of  the 
public.  They  alleviate  evils  instead  of  creating  them. 


SUSPENSION    OF    PAYMENT. 

All  the  evils  of  bank  currency,  however,  are  slight, 
being  small  in  amount,  local  in  their  character,  or 
temporary  in  their  operation,  compared  to  a  suspension 
of  specie  payments. 

This  is  the  evil  under  which  the  United  States  are 
now  suffering,  and  which  is  tolerated  by  public  opinion 
to  an  extent  which  is  truly  alarming,  as  regards  the 
future  character  of  our  currency. 

Suspension  of  specie  payments,  is  the  gentle  name 
applied  to  the  failure  or  refusal  to  perform  the  promise 
contained  on  the  face  of  the  bank  note ;  generally  ac 
companied  with  a  declaration  of  the  perfect  ability  to 
pay,  and  the  intention  to  do  so  at  some  future  time. 
Properly  viewed,  this  refusal  deprives  the  bank  note 
of  the  only  quality  which  gave  it  circulation,  the  power 
to  command  the  metallic  money  which  it  purports  to 
represent.  It  becomes  simply  a  broken  promise,  and, 
like  other  broken  promises,  of  no  other  value  than  the 
chance  that  legal  coercion  may  compel  eventual  per- 


1.3  ' 

formance ;  or  that  the  refusal  may  relax  into  a  willing 
ness  to  pay  at  some  future  time.  It  will  be  seen  that 
its  character  has  become  totally  changed  ;  that  instead 
of  possessing  the  original  principle  which  gave  it  cur 
rency,  it  becomes  in  the  hand  of  each  possessor  subject 
to  all  the  fluctuations  which  belong  to  doubtful  and 
uncertain  contingencies.  It  is  true,  that  a  single  bank 
taking  this  ground  will  not  be  sustained — it  is  a  fail 
ure — the  bank  cannot  choose  but  break.  But  let  a 
part  of  the  banks  of  one  of  our  commercial  cities  pro 
claim  this  intention,  all  the  others  follow,  and  the  pub 
lic  submit,  not  only  without  a  murmur,  but  give  it  their 
commendation.  The  State  Legislatures  give  it  their 
sanction,  almost  as  a  matter  of  course.  The  example  is 
considered  so  good,  that  it  is  followed  by  acclamation, 
and  sustained  by  the  general  voice.  Like  everything 
else  in  this  free  country,  it  is  public  opinion  which 
establishes  and  continues  this  state  of  things,  first 
without  or  against  law — afterward  the  law  is  made  to 
bend  to  this  opinion.  It  is  true,  all  affect  to  consider 
a  condition  of  broken  promises,  and  a  depreciated  cur 
rency,  as  an  evil,  but  it  is  acquiesced  in  at  once,  as  a 
sort  of  dispensation  of  Providence.  The  real  evil  is  in 
a  depraved  public  opinion,  which  tolerates  this  state  of 
things  at  all.  The  remedy  is  simple — but  perhaps  not 
very  easy — the  correction  of  this  public  opinion. 

It  would  not  perhaps  be  difficult  to  show  that  a  sus 
pension  of  payment  by  the  banks  ought  never  to  be 
tolerated  at  all ;  or  in  other  words,  bank  notes  should 
cease  to  perform  the  functions  of  currency  after  they 
have  lost  all  their  proper  attributes  ;  that  the  evil  of  a 
depreciated  paper  currency  is  a  greater  evil  than  any 
other  which  would  be  the  result  of  maintaining  a  sound 
currency  under  any  circumstances.  Even  the  suspen 
sion  of  1837,  which  is  generally  considered  to  have 


u 

been  inevitable,  and  which  was  the  result  of  a  state  of 
things,  which,  reasoning  a  priori,  no  man  would  have 
supposed  it  possible  could  exist,  and  which,  it  is  to  be 
hoped,  never  will  exist  again — that  suspension  has 
probably  produced  greater  evils  upon  the  community, 
considered  in  all  its  bearings,  than  could  possibly  have 
resulted,  had  the  New  York  banks  determined  to  con 
tinue  to  pay  specie  at  all  hazards. 

Without  however  going  into  the  consideration  of 
this  question,  there  can  be  no  hesitation  in  maintaining 
the  proposition,  that  under  no  circumstances  should  a 
suspension  be  tolerated  but  for  an  exceedingly  short 
period — a  few  months  perhaps,  never  so  long  as  a  year. 

Money  or  currency  is  an  instrument  of  the  first 
necessity  to  a  nation.  No  trade  or  commerce  can  be 
carried  on  without  it.  A  nation  using  a  currency 
wholly  metallic  may  feel  a  scarcity  of  money,  but  cannot 
be  drained  of  it,  any  more  than  a  mechanic  can  be 
made  to  part  with  the  tools  necessary  to  carry  on  his 
daily  business.  Overtrade  may  take  place  in  such  a 
community.  An  excessive  importation  of  foreign  com 
modities  may  cause  an  exportation  of  the  precious 
metals,  to  a  degree  of  inconvenience.  The  scarcity  of 
money  resulting  from  such  exportation  reduces  prices, 
the  effect  of  which  is  to  check  importation,  and  pro 
mote  the  exportation  of  all  commodities,  and  thus  the 
evil  soon  cures  itself,  by  the  return  of  the  coin  neces 
sary  to  its  trade.  No  other  considerable  importation 
will  take  place  until  it  has  in  this  way  recovered  what 
is  of  all  things  most  important  to  it,  its  tools  of  trade. 

Precisely  the  same  thing  takes  place  under  a  well- 
regulated  bank  currency.  It  seems  to  be  the  opinion 
of  the  best  writers  on  the  subject,  that  the  most  per 
fect  bank  circulation  would  be  one  which  should  be 
precisely  equal  in  amount  to  what  the  circulation  of 


15 

the  same  country  would  be  in  the  precious  metals,  were 
no  other  circulation  permitted. 

The  great  evil  of  the  modern  system  of  banking  is 
the  great  fluctuation  which  it  is  liable  to  produce  in  the 
quantity  of  the  circulating  medium.  This  is  easily 
understood.  Bank  notes  being,  as  already  shown, 
preferable  for  common  uses  to  coin,  and  costing  nothing 
to  make ;  the  process  of  increasing  the  circulating 
medium  is  very  easy,  and  is  certain  to  go  on  until  it 
meets  the  necessary  check  in  a  demand  for  payment. 
This  check  the  individual  bank  will  receive  in  its  ex 
changes  with  other  banks.  However  individuals  may 
in  their  transactions  consider  a  bank  note  as  money, 
the  banks  themselves  take  a  different  view  of  the  mat 
ter.  A  bank  balance  can  only  be  paid  in  coin.  Here 
is  a  check  upon  an  individual  bank ;  but  suppose  all 
the  banks  expand  simultaneously,  or  nearly  so,  to  which 
there  is  a  natural  tendency,  this  check  ceases  to 
operate. 

In  the  same  way  an  expansion  in  one  of  the  cities 
may  be  checked  in  consequence  of  balances  being  cre 
ated  against  it,  and  being  demanded  in  specie.  But 
suppose  the  cities  all  expand  at  the  same  time,  and 
there  is  a  powerful  sympathy  between  them,  the  check 
is  only  to  be  found  in  the  rise  of  the  foreign  exchanges 
to  a  point  which  induces  the  exportation  of  specie. 
This  foreign  export  of  specie  is  in  fact  the  only  check 
to  redundancy,  to  excess,  in  bank  circulation. 

An  expansion  of  the  currency  tends  to  an  advance  of 
prices — excites  commercial  enterprize,  and  finally  spec 
ulation  and  overtrade.  High  prices  encourage  impor 
tation  and  discourage  exportation,  a  rise  in  the  foreign 
exchanges  follows,  which  causes  an  export  of  specie, 
which  acts  as  a  proper  corrective  by  compelling  the 
banks  to  call  in  a  portion  of  their  issues.  This  is  done 


1C 

by  lessening  or  suspending  their  usual  discounts.  Here 
is  action  and  reaction,  very  beautiful,  and  all  very 
agreeable  to  the  public,  except  the  last  part  of  the  pro 
cess.  A  contraction  of  the  currency  causes  a  pressure 
on  the  money  market — reduces  prices — paralyzes  trade 
— brings  out  failures.  This  is  all  very  disagreeable. 
It  makes  what  is  called  hard  times.  But  in  fact  it  is 
always  the  return  from  a  false  position  to  a  true  one. 
It  is  never  necessary  to  diminish  a  currency  which  has 
not  been  redundant.  The  violence  of  the  pressure  is 
in  proportion  to  the  extent  of  the  overtrade  ;  and  gen 
erally  the  more  violent  the  pressure  the  shorter  the 
period. 

A  suspension  of  payment  by  the  banks,  is  the  alter 
native  presented  in  order  to  avoid  the  pressure  attend 
ing  the  contraction  of  the  currency,  to  the  degree  neces 
sary  to  stop  the  efflux  of  coin.  But  this  pressure  is 
working  the  cure  of  the  body  politic  laboring  under 
disease — the  disease  is  an  excess  of  bank  circulation, 
producing  overtrade,  inflated  and  unnatural  prices. 
The  cure  is  contraction,  producing  a  distress  for  money, 
a  reduction  of  prices,  perhaps  failures.  Suspension  is 
no  cure ;  it  is  merely  postponement.  It  may  be  con 
sidered  an  opiate,  which  if  justifiable  at  all,  can  only 
be  justifiable  where  the  paroxysms  are  so  violent  as  to 
endanger  life.  There  can  be  no  wholesome  action, 
until  the  purity  of  the  circulation  is  restored.  There 
is  no  escape  from  this  necessity.  It  is  after  all  a  ques 
tion  of  time.  Is  it  better  to  be  a  long  time  ill  with  a 
lingering  disease,  or  to  submit  to  a  painful  remedy  for 
immediate  relief?  Here  lies  the  essential  error  in  the 
case — the  idea  that  suspension,  may  be  considered  a 
remedy,  a  real  relief — whereas  it  is  almost  sure  to  com 
plicate  the  mischief.  A  continued  suspension  is  sure 
to  end  in  a  violent  convulsion. 


17 

But  perhaps  the  worst  part  of  suspension  is  its  moral 
effect  on  the  community.  Banks  are  established  as 
models  of  punctuality  and  honorable  dealing  ;  their 
notes  have  obtained  circulation  on  the  ground  that  the 
promise  to  furnish  the  coin  on  demand  was  of  the  most 
sacred  character.  They  have  become  the  depositories 
of  the  money  of  the  community,  under  the  most  solemn 
pledge  that  it  should  be  forthcoming  on  demand.  The 
directors  of  banks  are  selected  from  those  of  the  high 
est  standing  in  the  mercantile  community — their  ob 
ligation  to  carry  out  the  provisions  of  the  charter, 
and  to  fulfil  the  contracts  made  under  it,  would  seem 
to  be  of  the  highest  and  most  binding  character.  They 
are  in  fact  the  trustees  of  the  stockholders  and  deposi 
tors,  selected  for  this  very  purpose.  It  is  difficult  to 
perceive  how  honorable  men,  holding  the  office  of  bank 
directors,  can  reconcile  a  continued  suspension  to  a 
proper  sense  of  moral  obligation. 

The  effect  of  a  suspension  of  the  banks  is  immedi 
ately  apparent  in  its  effect  upon  the  moral  sense  of  the 
community,  as  regards  the  obligation  of  contracts.  The 
breach  of  contract  by  the  banks  is  alleged  as  a  sufficient 
apology  for  the  breach  of  contract  by  individuals,  and 
is  generally  received  as  a  sufficient  justification.  The 
broken  promise  of  a  bank  is  offered  and  received  as  the 
only  alternative  on  all  contracts  falling  due.  The 
grossest  injustice  is  thus  inflicted,  which  has  no  pallia 
tion  but  its  universality.  A.  submits  to  receive  a  de 
preciated  currency,  because  he  can  practise  the  same 
injustice  upon  B.  The  rights  of  creditors  are  sacrificed 
to  the  convenience  of  debtors. 

A  continued  suspension  commits  a  double  injustice. 
The  true  value  of  a  non-convertible  paper  currency,  is 
accurately  measured  by  its  specie  value  in  the  market. 
Prices  soon  conform  themselves  to  this  unerring  stand- 


18 

aid.  A  contract,  therefore,  founded  upon  a  scale  of 
prices  under  a  depreciated  currency,  and  executed  in  a 
purer  currency,  operates  with  equal  injustice  upon  the 
debtor.  It  is  probably  for  this  reason,  that  a  currency 
greatly  depreciated  is  rarely  restored,  but  generally 
goes  on  from  bad  to  worse. 

An  admirable  illustration  of  this  is  afforded  in  the 
currency  of  Buenos  Ayres,  where  a  bank  was  establish 
ed,  issuing  notes  as  the  representatives  of  Spanish  dol 
lars.  About  the  year  1820,  this  currency  depreciated 
very  rapidly,  and  settled  down  at  about  14  cents  the 
dollar.  At  the  last  dates,  the  exchange  on  London 
was  at  2%d  sterling,  equal  to  ^1A  cents  to  the  dollar.  It 
was  considerably  lower  during  the  blockade.  Can  any 
one  suppose  that  such  a  currency  will  ever  be  restored  ? 
Even  this,  however,  has  been  outdone  by  some  of  the 
banks  of  Mississippi,  where  what  was  considered  good 
currency  one  day,  has,  like  Jonah's  gourd,  withered 
entirely  in  the  course  of  a  night. 

There  is  no  greater  error  than  the  supposition  that  a 
depreciated  currency  will,  in  time,  cure  itself.  A  re 
dundant  currency  first  shows  itself  in  the  rates  of  ex 
change  with  other  places.  These  rise  so  high  as  to 
make  coin  the  cheapest  and  most  desirable  remittance. 
The  banks  are  called  on  to  furnish  this  coin.  It  is 
then  common  to  attribute  the  difficulty  to  an  unfavora 
ble  balance  of  trade.  Suspension  ensues.  The  rate  of 
exchange  with  places  possessing  a  specie  currency  is  a 
certain  indication  of  the  rate  of  depreciation.  But 
there  are  those  who  will  attribute  all  to  an  unfavorable 
balance  of  trade. 

This  is  the  state  of  public  opinion  in  Philadelphia  at 
the  present  time.  They  find  the  balance  of  trade  con 
tinue  unaccountably  against  them  with  New  York  and 
Boston,  and  consider  it  impossible  for  the  banks  to  re- 


19 

sume  until  a.  change  takes  place  in  their  trade.  The 
real  difficulty  lies  in  the  excess  of  their  currency.  A 
contraction  of  their  currency  is  the  only  remedy ;  let 
them  reduce  their  currency  to  the  specie  standard,  they 
will  find  the  exchange  with  New  York  come  to  par  at 
once.  It  may,  in  fact,  be  necessary  for  them  to  reduce 
it  so  far  as  to  turn  the  exchange  in  their  favor,  so  as  to 
bring  specie  from  New  York.  This  is  their  only  alter 
native,  in  case  the  quantity  in  the  city  is  inadequate  to 
sustain  resumption.  There  can  be  no  doubt  that  Phi 
ladelphia  is  mistaking  her  true  interest  by  postponing 
this  process.  There  can  be  no  wholesome  sound  trade 
under  a  depreciated  currency.  The  restoration  can  as 
easily  be  made  in  two  months  as  two  years.  Contrac 
tion  must  be  made  and  the  sooner  the  better. 

It  is  'not  to  be  disguised  that  Philadelphia  has  been 
under  the  influence  of  false  opinions  on  the  subject  of 
currency,  since  the  suspension  of  1837.  These  may 
probably  be  attributed  to  the  influence  acquired  by  Mr. 
Bicldle  on  this  subject.  His  elaborate  letter  to  John 
Quincy  Adams  of  April  5,  1838,  placed  the  matter  of 
suspension  on  a  new  ground,  and  one  wholly  unjustifi 
able.  Instead  of  being  put  on  the  ground  of  inevitable 
and  temporary  necessity,  it  was  defended  as  a  measure 
of  expediency,  and  to  be  continued  indefinitely,  until 
the  happening  of  contingencies  over  which  the  banks 
had  no  control.  It  announced  distinctly  that  the  banks 
should  not  resume  until  a  change  took  place  in  the  ad 
ministration  of  the  general  government.  It  also  an 
nounced,  in  language  not  to  be  misunderstood,  that  no 
resumption  should  take  place  until  the  United  States 
Bank  was  restored  as  the  fiscal  a£>-ent  of  the  govern- 

o  o 

ment. 

It  announced  principles  as  false  in  political  economy 
as  its  whole  character  was  objectionable  on  the  score  of 


20 

mercantile  morality.  Such  was  the  influence  which 
Mr.  Bicldle  had  unfortunately  acquired  in  Philadelphia, 
that  his  views,  so  speciously  put  forth,  were  adopted  in 
that  city  without  hesitation,  and  have  continued  to 
control  their  operations  to  the  present  time. 

Fortunately,  Mr.  Bicldle  was  unsuccessful  in  the 
principal  ohject  of  his  letter,  that  of  preventing  the 
New  York  hanks  from  resuming.  A  small  hut  deter 
mined  party  in  New  York,  with  Mr.  Gallatin  at  their 
head,  viewed  the  suspension  in  its  true  light — a  state 
of  disgrace  and  reproach,  in  which  there  could  he  no 
wholesome  revival  of  trade,  and  not  to  he  tolerated  be- 
yond  the  year  granted  by  the  legislature.  New  York 
resumed  triumphantly  in  May,  1838.  Boston  followed 
her  example.  Mr.  Biddle  was  driven  by  the  force  of 
public  opinion  from  the  ground  he  had  taken.  With 
a  very  bad  grace  he  changed  his  position  in  July,  and 
the  Philadelphia  banks  resumed  their  proper  functions. 
The  banks  of  the  South  and  West,  with  few  exceptions, 
resumed  their  payments  soon  after,  and  the  trade  of  the 
country  revived  to  an  extent  and  degree  which  left 
nothing  to  regret,  but  an  apprehension  that  we  were 
going  too  fast.  This  was  too  true.  The  efforts  of  the 
United  States  Bank,  to  bolster  up  an  artificial  credit,  in 
order  to  cover  its  own  weakness,  produced  an  expansion 
of  the  currency,  which,  in  its  reaction,  caused  a  con 
siderable  pressure  on  the  money  market.  This  soon 
showed  the  weakness  of  that  institution,  which  again 
suspended  in  October,  1839.  The  other  banks  of 
Philadelphia  follow  without  hesitation.  Baltimore  and 
the  West,  as  a  matter  of  course.  New  York  and  Boston 
stand  firm,  and  thus  preserve  a  sound  currency  to  one 
half  the  Union,  whilst  the  other  half  is  given  up  to 
shin-plasters  and  depreciation. 

At  length  the  United  States  Bank  changes  its  ground. 


21 

Mr.  Biddle's  prophecy  that  a  continued  suspension 
would  not  injure  the  credit  of  the  country  abroad,  is 
not  realized ;  Mr.  Jaudon,  the  London  agent,  finds  that 
the  bank  cannot  sell  its  American  stocks,  or  borrow 
money  upon  them  much  longer,  without  a  restoration 
of  the  currency.  Pie  makes  a  voyage  to  America  for 
the  purpose  of  bringing  about  a  resumption.  After 
effecting  a  new  loan  of  five  millions  of  dollars  on  this 
side  the  water,  and  of  four  millions  in  Europe,  the 
bank  attempts  to  pay  its  debts  on  the  15th  January 
last.  But  such  had  been  the  inconceivable  mismanage 
ment  of  that  institution,  that  after  twenty  days'  trial  it 
broke  down  in  inevitable  and  hopeless  bankruptcy. 
Again  the  Philadelphia  banks  follow  suit,  without 
giving  the  attempt  to  stand  alone  a  fair  trial.  Balti 
more  had  become  so  imbued  with  the  Philadelphia 
doctrine  of  the  advantages  of  non-payment,  that  for  a 
few  days  after  the  resumption  in  January  she  hesitated 
about  fulfilling  her  pledge  of  resuming  with  Phila 
delphia.  She  of  course  went  back  into  a  state  of 
suspension  with  perfect  delight.  She  likes  Mr.  Biddle's 
"  repose" 

The  question  now  arises,  what  is  to  be  done  I  How 
is  the  currency  to  be  restored  I  The  answer  is  simple 
and  easy.  Abandon  your  false  theories.  Philadelphia 
and  New  York  have  stood  in  opposition,  as  the  repre 
sentatives  of  antagonist  opinions.  New  York  and  the 
North  have  gone  for  immediate  resumption,  with  a 
present  sacrifice,  and  a  bank  currency  convertible  into 
coin  on  demand.  This  portion  of  the  country  finds  no 
difficulty  in  its  present  position.  It  enjoys  a  sound 
currency,  and  no  scarcity  of  it.  There  is  no  want  of 
confidence  where  it  ought  to  exist.  Its  internal  trade 
is  in  a  healthy  and  natural  state.  All  is  well. 

On  the  other  hand,  with  Philadelphia,  the  South  and 


22 

West  have  gone  for  indefinite  suspension ;  they  have 
preferred  present  ease  with  an  inconvertible  paper  cur 
rency.  The  inevitable  results  of  a  depreciated  currency 
have  followed.  The  destruction  of  all  general  credit — 
the  disgrace  of  broken  faith — universal  distrust.  The 
remedy  lies  in  retracing  their  steps.  Let  the  solvent 
banks  of  Philadelphia  decide  at  once  to  receive  nothing 
which  is  not  equivalent  to  gold  and  silver;  to  have 
nothing  to  do  with  certificates  of  deposit  or  any  other 
moonshine;  to  reduce  their  liabilities  steadily  and  man 
fully,  until  they  become  as  scarce  and  as  valuable  as 
coin.  Under  this  course  resumption  will  come  of  itself 
within  sixty  days.  We  have  a  right  to  expect  this 
course  from  the  banks  of  Philadelphia.  They  have 
been  the  victims  of  Mr.  Biddle's  false  theories  long 
enough.  The  late  astounding  disclosures  connected 

o  o 

with  the  United  States  Bank,  have  sufficiently  accounted 
for  the  opinions  put  forth  by  him,  evidently  to  cover 
the  weakness  of  the  bank.  They  are  now  free  from  the 
incubus  of  that  institution.  Instead  of  appeals  to  the 
Legislature  for  relief  laws,  let  them  put  forth  their  own 
energies,  and  the  rich  city  of  Philadelphia  may  soon 
resume  her  former  standing  and  character.  It  is  in 
fact  believed,  that  a  decided  change  in  public  opinion 
has  taken  place  in  Philadelphia  within  the  last  few 
months,  and  that  a  speedy  resumption  may  be  calcu 
lated  on.  Let  her  banks  beware  how  they  involve 
themselves  in  the  embarrassments  of  the  State  of  Penn 
sylvania  ;  this  partnership  in  insolvency  will  prove  of 
.all  things  most  ruinous  to  the  credit  of  both. 

The  Baltimore  banks  appear  generally  to  be  in  a 
condition  to  resume  with  little  contraction ;  but  the 
city  of  Baltimore  will  suffer  severely  in  the  withdrawal 
of  the  small  notes  of  the  railroad  company,  convertible 
only  into  a  stock  depreciated  some  15  or  20  per  cent. 


23 

below  specie.  The  issuing  such  a  currency  in  so  large 
quantity  was  a  great  mistake,  as  it  will  throw  a  heavy 
loss  on  people  little  able  to  bear  it,  but  very  able  to 
clamor,  as  they  will  have  just  cause  to  do.  The  banks 
of  Pennsylvania  will  make  the  same  mistake,  should 
they  adopt  the  late  law  authorizing  them  to  issue  three 
millions  in  small  notes,  convertible  into  5  per  cent. 
State  stock.  It  will  be  another  downward  plunge  into 
the  gulf  where  they  have  already  found — how  easy  the 
descent,  how  difficult  the  return.  No  necromancy  can 
make  eighty  cents  pass  for  a  dollar  very  long.  It  is 
a  concealed  forced  loan  on  the  banks  for  the  whole 
amount.  As  the  South  and  West  have  gone  with 
Philadelphia  in  suspension  they  will  probably  not  be 
long  in  following  her  example  in  resumption. 

One  of  the  fallacies  put  forth  has  been  that  no 
resumption  ought  to  be  attempted  in  the  Atlantic  cities, 
until  a  simultaneous  resumption  could  be  made  through 
out  the  whole  country.  This  is  a  very  convenient  doc 
trine  in  favor  of  delay,  but  wholly  unsound  in  fact. 
Every  centre  of  trade  can  establish  and  maintain  a 
sound  currency  for  itself,  if  it  choose  to  do  so.  The 
effect,  instead  of  taking  specie  from  it,  is  to  bring  specie 
into  it  from  the  suspended  districts  where  it  is  not  in 
use.  This  was  fully  proved  in  Boston,  and  the  circle 
of  circulation  controlled  by  it,  during  the  suspension  of 
1814,  15,  and  16. 

We  must  not  expect  to  see  a  sound  currency  estab 
lished  at  once,  in  all  parts  of  the  United  States,  under 
any  circumstances.  It  is  only  by  degrees  that  a  depre 
ciated  currency  will  work  its  own  cure,  by  the  bank 
ruptcy  of  one  bad  concern  after  another.  There  are  no 
doubt  many  banks  which  never  can  resume,  but  which 
will  for  some  time  struggle  on  to  maintain  a  currency, 
and  finally  sink  into  bankruptcy. 


24 

New  Orleans  has  no  apology  for  non-resumption,  but 
that  her  banks  think  it  more  convenient  and  profitable 
than  a  sounder  currency,  and  the  public  choose  to 
submit  to  it.  It  is  absurd  to  suppose  that  a  city  in 
which  the  article  of  cotton  alone  is  annually  sold  to  the 
value  of  thirty  millions  of  dollars,  for  cash  on  delivery, 
or  short  bills  on  New  York  and  London  cannot  main 
tain  a  sound  currency.  The  difficulty  lies  rather  in 
finding  any  apology  for  continued  suspension. 

To  the  example  and  influence  of  this  great  emporium 
of  commerce  may  be  attributed  the  continued  suspen 
sion  of  the  whole  West.  Here  too  we  trace  the  fatal 
influence  of  Mr.  Biddle,  through  the  purchased  agency 
of  the  Merchants  Bank,  which  has  been  the  constant 
advocate  of  non-resumption.  Philadelphia  in  the  East, 
and  New  Orleans  in  the  West,  should  be  held  responsi 
ble  for  the  longer  continuance  of  this  demoralizing 
system  throughout  the  whole  United  States. 

A     NATIONAL     BANK. 

The  existence  or  non-existence  of  a  national  bank, 
has  been  so  mingled  with  the  contests  of  the  political 
parties  into  which  the  country  has  been  divided,  that  the 
attempt  to  discuss  it  on  its  own  merits,  without  refer 
ence  to  its  political  bearing,  may  be  considered  rash  if 
not  visionary.  Yet  it  involves  questions  of  political 
economy  of  the  most  difficult  and  abstruse  nature, 
which  can  be  little  and  imperfectly  understood  by  the 
masses  of  the  community.  General  Jackson  made  this 
question  the  symbol  of  party.  The  consequence  has 
been,  that  for  nearly  ten  years  the  mercantile  business 
of  the  country  has  been  agitated,  and  sometimes  para 
lyzed,  by  the  connection  of  banking  operations  with  the 
struggles  of  party.  It  is  to  be  hoped  that  this  unholy 


25 

union  will  cease,  and  that  the  question  of  establishing 
a  national  bank,  and  the  character  of  it,  will  be  discus 
sed  on  its  own  merits  as  a  nice  and  difficult  question, 
which  it  certainly  is.  At  any  rate  it  is  in  this  view  of 
it  that  it  will  be  here  presented. 

That  a  national  bank  is  so  convenient  as  to  be  all 
but  essential  to  the  collection,  safe  keeping,  and  dis 
bursement  of  the  revenue,  the  writer  can  have  no 
doubt.  On  this  point  theory  and  experience  coincide. 
There  can  be  no  doubt  that  a  bank,  as  fiscal  agent  of 
the  treasury,  can  receive  and  distribute  the  moneys  of 
the  government,  with  more  safety  and  ease  than  any 
other  instrument  or  agency  that  can  be  devised.  This 
is  also  undoubtedly  its  strongest  constitutional  basis. 
To  afford  proper  security  the  bank  must  possess  a  cer 
tain  amount  of  capital.  For  this  purpose  perhaps  the 
least  sum  which  it  would  be  prudent  to  fix  on,  is  ten 
millions  of  dollars.  To  such  a  bank,  there  would  seem 
to  be  no  reasonable  objection. 

Another  ground  put  forward  in  favor  of  a  national 
bank,  embraced  by  a  large  portion  of  the  community, 
is  its  necessity  as  a  regulator  of  the  currency.  For  this 
purpose  a  large,  a  magnificent  bank  is  wanted,  a  bank 
with  a  capital  of  fifty  or  one  hundred  millions  of  dol 
lars.  To  such  a  bank  there  are  decided  objections.  As 
a  regulator  of  the  currency  it  is  of  doubtful  utility. 
Banks  issuing  paper  currency  are  established  by  the 
authority  of  the  different  States.  They  furnish  a  cur 
rency  having  no  legal  character,  but  having  a  conven 
tional  circulation  arising  from  its  convenience.  These 
banks  are  good  or  bad  institutions,  according  to  their 
management.  A  bank  which  fulfils  its  promises  by 
paying  its  notes  on  demand,  readily  and  cheerfully,  and 
furnishing  capital  to  those  who  need  it,  is  a  good ;  but 
a  bank  which  asks  for  credit,  whilst  it  belies  its  own 


26 

promises,  sets  an  example  injurious  to  all  sound  morals, 
and  is  a  great  evil.  But  the  fault  lies  in  the  commu 
nity  which  tolerates  such  an  abuse.  Public  opinion 
should  prescribe  the  remedy.  It  is  a  melancholy  fact 
that  there  is  little  security  for  the  good  conduct  of 
banks,  but  in  the  power  of  coercion  by  law.  It  was 
legal  coercion  which  brought  the  country  banks  of 
New  England  to  a  sense  of  their  duty  in  1808,  when 
they  had  introduced  a  system  of  evasion  or  delay  of 
payment  of  their  notes.  It  is  the  penalty  of  two  per 
cent,  a  month,  enacted  in  1810,  which  has  insured  their 
punctuality  since  that  time.  It  is  not  too  much  to  say 
that  it  was  the  legal  penalty  of  forfeiture  of  charter, 
and  the  belief  that  the  law  could  not  be  changed, 
which  secured  the  resumption  in  New  York,  in  1838. 
It  is  owing  to  the  unreasonable  relaxation  of  the  laws 
in  Pennsylvania  that  Philadelphia  is  still  suffering 
under  a  depreciated  currency.  When  public  opinion 
relaxes  this  power  of  coercion,  under  the  influence  of 
the  debtor  portion  of  the  community,  giving  the  banks 
a  sort  of  immunity,  it  is  certainly  a  bad  state  of  things. 
This  is  our  present  state.  But  the  evil  will  work  its 
own  cure.  A  national  bank  has  no  direct  power  of 
coercion.  It  can  only  act  by  moral  force — the  force  of 
a  good  example — upon  public  opinion.  With  a  correct 
public  opinion,  it  is  wholly  unnecessary. 

The  chief  argument  in  favor  of  the  necessity  of  a 
national  bank,  as  a  regulator  of  the  currency,  is  drawn 
from  the  facts  that  the  suspension  of  specie  payments 
in  1814,  took  place  after  the  expiration  of  the  charter 
of  the  first  bank,  and  that  a  specie  currency  was  not 
restored  until  the  establishment  of  a  new  bank,  which 
went  into  operation  in  1817.  The  power  of  the  bank 
in  this  restoration  is  much  overrated.  The  suspension 
of  the  banks  in  September,  1814,  was  in  consequence 


27 

of  the  advances  made  to  government  on  loans  and 
treasury  notes,  by  the  banks  of  the  cities  south  of  New 
England.  These  securities  suffered  a  great  deprecia 
tion,  in  consequence  of  no  provision  being  made  for  a 
revenue  to  pay  the  interest,  and  to  meet  the  great  ex 
penditures  caused  by  the  war.  Boston  and  New  Eng 
land  took  no  part  in  this  suspension,  having  taken  but 
sparingly  of  the  government  loans,  partly,  originally, 
on  account  of  not  approving  the  war,  but  chiefly  as  a 
matter  of  calculation,  because  there  was  no  adequate 
provision  for  the  payment  of  the  interest.  It  is  a  gra 
tuitous  assumption,  that  there  would  have  been  no 
suspension  had  -a  national  bank  been  in  existence  at 
that  time.  On  the  contrary,  it  is  but  fair  to  presume 
that  such  an  institution,  acting  in  sympathy  with  the 
necessities  of  the  government,  would  have  been  the 
first  to  propose  it.  The  government  made  no  objection 
to  the  suspension  of  1814;  on  the  contrary,  it  received 
everywhere  the  depreciated  currency  of  the  local  banks, 
and  gave  credit  and  support  to  the  system. 

Fortunately,  peace  came  in  February,  1815.  With 
the  peace,  the  credit  of  the  government  revived  at 
once.  The  immediate  restoration  of  the  currency  was 
universally  expected.  New  York  currency  rose  to 
within  two  per  cent,  of  specie.  It  was  the  fault  of  Mr. 
Dallas,  then  Secretary  of  the  Treasury,  that  resumption 
did  not  then  take  place.  He  refused  to  execute  the 
laws  passed  by  Congress  for  that  express  purpose. 
The  immediate  obstacle  to  the  restoration  of  the  cur 
rency  in  New  York,  Philadelphia  and  Baltimore,  was 
the  large  amount  of  treasury  notes  held  by  the  banks 
of  those  cities,  many  of  them  past  due.  The  session  of 
Congress  expired  on  the  4th  of  March ;  but,  in  the 
short  interval  after  the  knowledge  of  the  peace,  a  law 
was  passed,  authorizing  a  loan  to  the  amount  of  twelve 


1   28 

millions  of  dollars,  with  a  view  to  restore  the  credit  of 
the  government,  and  the  character  of  the  currency. 
The  law  was  sufficient,  but  its  execution  was  intrusted 
to  Mr.  Dallas,  and,  instead  of  executing  it  in  its  proper 
spirit,  by  negotiating  the  loan  in  the  legal  currency,  he 
gave  a  new  impetus  to  the  issues  of  inconvertible  paper, 
by  receiving  them  in  payment  of  stock,  and  passing 
them  off  as  the  only  payment  which  would  be  made  to 
the  public  creditors. 

The  fact  is,  Mr.  Dallas  was  at  that  time  a  paper 
money  man.  An  immense  importation  took  place 
immediately  after  the  peace.  A  great  expansion  of  the 
banks  in  the  South  and  West  followed.  The  enormous 
amount  of  thirty-six  millions  of  dollars  was  paid  into 
the  treasury  in  the  year  1816,  arising  from  duties  alone. 
The  golden  opportunity  for  resumption  had  been  allow 
ed  to  pass  by.  The  paper  of  Philadelphia  fell  to 
twenty  per  cent,  discount.  The  government  and  the 
banks  were  involved  as  partners  in  all  the  enjoyments 
of  a  paper  currency  greatly  depreciated. 

At  length  the  system  would  work  no  longer.  In 
this  dilemma,  the  late  Bank  of  the  United  States  was 
chartered,  with  a  large  capital,  made  up  chiefly  of  gov 
ernment  stocks.  There  is  no  doubt  that  the  establish 
ment  of  this  bank  had  some  effect  in  the  restoration  of 
the  currency ;  but  those  who  have  a  distinct  recollec 
tion,  or  will  study  into  the  monied  operations  of  that 
period,  will  make  large  deductions  from  the  popular 
impression,  that  the  establishment  of  that  bank  was  an 
immediate  and  universal  panacea.  The  truth  is,  the 
bank  went  into  operation  on  false  principles.  It  under 
took  to  bolster  up  the  fictitious  paper  money  prices  of 
1816.  It  imported  specie  at  a  great  loss,*  which  could 

*  Specie  imported  by  the  bank,  July,  1817,  to  December,  1818,  $7,311,000; 
loss,  $525,297,  or  7  1-2  per  cent. 


29 

not  be  made  to  stay  in  the  bank  or  the  country  in  com 
pany  with  a  currency  so  inflated.  The  whole  system 
broke  down  in  1819,  when  Mr.  Cheves  was  called  to 
the  administration  of  the  bank,  by  whose  energy  it 
was  barely  saved  from  stopping  payment.  The  restora 
tion  of  the  currency  then  took  place ;  but  not  without 
producing  a  degree  of  pecuniary  distress  which  has  had 
no  parallel  since. 

Another  argument  much  dwelt  on  in  favor  of  a  large 
national  bank,  is  its  necessity  to  equalize  the  exchanges. 
There  is  not  much  in  this.  There  is  no  difficulty  with 
the  exchanges  where  the  banks  pay  specie.  There  lies 
the  whole  difficulty.  Let  that  be  reformed,  and  there 
will  be  no  complaint  on  that  score.  The  exchanges 
soon  regulate  themselves  where  the  currency  is  uniform, 
as  is  the  legal  currency  of  the  United  States.  A  large 
bank  with  many  branches,  can  manage  the  exchanges 
with  more  profit  to  itself ^  perhaps,  than  the  local  banks 
can  do.  The  late  United  States  Bank  took  care  to 
charge  the  highest  rates  for  exchange  which  the  alter 
native  of  transporting  specie  would  admit.  For  several 
years  the  exchange  at  New  Orleans  on  northern  bills 
was  kept  so  high,  that  considerable  shipments  of  specie 
were  made  from  Boston  and  New  York  for  the  pur 
chase  of  cotton.  The  change  in  our  laws,  which  has 
made  gold  the  basis  of  our  currency,  will  have  a  most 
salutary  effect  in  lessening  the  rates  of  exchange,  when 
ever  the  banks  resume  their  proper  functions.  The 
effect  is  already  quite  apparent  on  the  exchanges  be 
tween  Boston  and  New  York.  Gold  is  constantly 
transported  from  one  city  to  the  other  before  the  ex 
change  can  rise  to  a  quarter  of  one  per  cent.,  which  is 
consequently  the  maximum  rate.  When  the  banks 
paid  out  silver,  transportation  would  hardly  be  attempt 
ed  with  an  exchange  below  one  per  cent. 


30 

Another  argument  in  favor  of  a  great  bank  is,  that 
it  may  furnish  a  paper  medium  which  will  circulate 
throughout  the  whole  United  States.  Its  importance, 
in  this  respect,  is  greatly  overrated.  A  credit  in  New 
York,  the  central  city,  or  a  hank  note  payable  in  New 
York,  will  be  more  valuable  than  specie  throughout 
the  whole  ulterior.  Such  notes,  of  known  credit,  will 
make  their  appearance  whenever  the  people  choose  to 
pay  for  them.  It  is  a  curious  fact,  that  the  general 
currency  of  the  United  States  Bank  notes,  in  conse 
quence  of  their  being  receivable  everywhere  in  pay 
ments  to  the  government,  was  considered  a  great  evil 
both  by  the  bank  and  the  community.  For  six  years 
the  bank  -was  petitioning  Congress  for  an  alteration  of 
their  charter,  so  that  the  notes  of  the  bank  should  only 
be  received  for  payments  to  the  government  at  the  offices 
where  the  notes  were  payable ;  and  in  February,  1823, 
a  committee  of  the  house  of  representatives  reported  in 
favor  of  bringing  in  such  a  bill.  It  is  true  that  such 
an  application  was  the  result  of  false  views  of  banking, 
but  is  a  proof  of  the  uncertainty  of  public  opinion  as  to 
the  true  remedy  of  a  disordered  currency.  During  all 
this  period,  the  country  was  working  itself  free  from 
the  disorders  arising  out  of  the  suspension  of  1814,  15, 
and  16,  and  it  may  be  questioned  whether  the  period 
of  correction  was  hastened  by  the  operations  of  the 
United  States  Bank. 

It  is  not  to  be  concealed  that  there  are  serious  objec 
tions  to  the  establishment  of  a  bank  of  the  magnitude 
and  power  necessary  to  the  regulation  of  the  currency. 
In  the  first  place,  such  a  power  is  wholly  contrary  to 
the  spirit  of  our  institutions,  which  are  founded  upon 
the  principle  of  free  competition ;  of  action  and  reaction 
amongst  equals.  A  great  central  power,  independent 
of  the  general  or  state  governments,  is  an  anomaly  in 


31 

our  system.  Such  a  power  over  the  currency  is  the 
most  tremendous  which  can  be  established.  Without 
the  assurance  that  it  will  be  managed  by  men,  free  from 
the  common  imperfections  of  human  nature,  we  are 
safer  without  it.  Under  a  system  of  free  competition, 
if  one  bank  or  one  city  go  wrong,  the  evil  is  soon  recti 
fied.  The  laws  of  trade,  left  to  themselves,  arc  sure, 
and  will  soon  cure  the  evils  of  individual  misconduct 
or  speculation.  But  if  the  regulator  itself  goes  wrong, 
there  is  no  remedy,  or  none  without  a  convulsion. 

In  fact,  the  great  and  decided  objection  to  a  bank  of 
great  power,  to  act  as  general  regulator  of  the  currency, 
is  the  apprehension  that  it  may  itself  suspend  specie  pay 
ments,  under  the  sanction  of  the  general  government, 
and  thus  fix  upon  the  country  an  inconvertible  paper 
currency.  This  danger  is  much  greater  with  a  great 
national  bank  than  without  it.  In  case  of  a  war,  or 
any  great  financial  embarrassment,  such  an  institution, 
acting  in  sympathy  with  the  predominant  party  in  the 
general  government,  will  be  the  first  to  propose  this  ex 
pedient,  by  which  its  circulation  and  profits  will  be 
greatly  enhanced.  In  such  a  period,  a  few  interested 
and  influential  individuals,  under  the  talisman  of  party 
discipline,  may  easily  carry  such  a  measure  ;  whilst  in 
stitutions  deriving  their  existence  from  the  States,  are 
protected  by  the  constitution  from  any  such  legal  as 
sumption.* 

There  is,  in  the  nature  of  things,  greater  danger  of 
mismanagement  in  such  an  institution,  where  the  inter 
est  of  the  managers  is  comparatively  small,  than  in  in- 

*  In  18 19,  a  resolution  passed  the  House  of  Representatives,  directing  the  Sec 
retary  of  the  Treasury  to  report  such  measures  as,  in  his  opinion,  maybe  expe 
dient,  amongst  other  things,  "to  supply  a  circulating  medium  in  place  of  specie, 
adapted  to  the  exigency  of  the  country,  and  within  the  power  of  the  govern 
ment."  Mr.  Crawford  made  an  able  report  against  the  substitution,  in  Feb- 
ruarv,  1820. 


32 

stitutions  of  less  capital  immediately  under  the  direction 
of  parties  more  deeply  interested. 

Our  experience  under  the  last  bank  of  the  United 
States  is  not  such  as  to  give  us  any  great  warrant  for 
the  future.  On  going  into  operation,  it  fell  into  the 
hands  of  speculators,  and  in  less  than  two  years,  lost 
more  than  ten  per  cent,  of  its  capital,  so  that  it  made  no 
dividends  during  the  succeeding  two  years.  As  a  regu 
lator  of  the  currency,  its  success  was  not  remarkable. 

It  was  obliged  to  hire  the  banks  of  New  York, 
Philadelphia  and  Baltimore,  to  resume,  by  agreeing  to 
make  large  discounts  in  those  cities.*  It  thus  kept  up 
the  inflation  of  the  currency,  which  was  the  evil  of  the 
time,  and  by  doing  so  saddled  itself  with  immense  losses. 
Under  the  energetic  administration  of  Mr.  Cheves,  the 
currency  was  indeed  restored  to  its  true  character,  by  a 
rigid  system  of  contraction,  but  accompanied  with  in 
tense  public  suffering,  which  was  indeed  unavoidable, 
but  made  the  bank  and  Mr.  Cheves  exceedingly  unpop 
ular,  in  extensive  portions  of  the  country.  It  was 
during  this  period  that  many  of  the  States  attempted  to 
expel  the  bank  from  operating  within  them,  by  taxing 
the  branches,  and  other  modes  of  coercion. 

Mr.  Biddle  came  into  the  administration  of  the  Bank 
in  1823,  under  the  most  favorable  auspices,  after  the 
difficulties  of  the  currency  were,  in  a  great  measure, 
surmounted ;  and  it  cannot  be  denied  that  his  manage 
ment  was  for  many  years  eminently  successful,  so  far 
as  the  interests  of  the  bank  were  concerned.  It  may 
however  be  doubted,  whether  the  country  is  under  any 
great  obligation  to  him  as  the  regulator  of  the  currency, 
so  far  as  relates  to  fluctuations  in  the  money  market. 
Severe  revulsions  took  place  in  1826,  1829,  and  1832, 

*  In  New  York  and  Philadelphia,  two  millions  each,  in  Baltimore  a  million 
and  a  half. 


and  the  Bank  of  the  United  States  took  its  full  share 
in  the  expansions  which  preceded  them.  It  was  the 
general  impression  of  those  who  watched  Mr.  Biddle's 
course,  that  he  was  a  hold  navigator ;  that  he  kept  his 
ship  under  a  press  of  sail,  relying  upon  his  skill  in 
taking  in  canvas  in  case  of  a  squall ;  of  which  he  has 
occasionally  given  us  evidence  himself.  Now  a  regu 
lator  should  go  for  security  rather  than  profit — with 
much  ballast,  carrying  light  sail.  No  one  can  doubt 
that  his  contractions  in  1834,  so  distressing  to  the 
community,  were  pushed  beyond  reasonable  measure, 
for  the  purpose,  by  that  means,  of  effecting  the  renewal 
of  the  charter,  under  the  pretence  of  the  necessity  of 
preparing  for  winding  up  its  concerns,  whilst  his  sub 
sequent  expansion  had  a  full  share  in  producing  the 
mad  and  wild  speculations  of  1835  and  6.* 

The  subsequent  developments  of  his  opinions  in 
reference  to  a  continued  and  permanent  state  of  sus 
pension  of  specie  payments,  make  it  but  too  probable 
that  a  suitable  opportunity  alone  was  wanting,  for  him 
to  have  brought  his  ship  into  that  harbor  of  "  repose." 
He  appears  to  dwell,  with  apparent  satisfaction  on  the 
twenty-five  years  which  were  allowed  the  Bank  of 
England,  after  the  suspension  of  1797.  That  suspen 
sion  seems  to  have  been  with  him  a  favorite  topic. 
But  he  seems  not  to  be  aware  of  the  moral  distinction 
between  that  suspension  and  our  own.  The  Bank  of 
England  suspended  by  act  of  Parliament,  our  banks 
suspend  without  law  and  against  law,  at  the  pleasure 
of  the  debtor  party.  The  continued  suspension  of  the 
Bank  of  England  was  a  measure  of  State  policy;  cer 
tainly  without  the  slightest  necessity — and  very  bad 
policy  no  doubt,  but  very  convenient,  in  order  to  con- 

*  Amount  of  U.  S.  Bank  Loans,  1st  Sept.  1834,  47,059,498. 
"         "      "         "         "        1st  June,  1835,  63,649,646. 


3-i 

ceal  the  real  terms  of  the  immense  loans  made  during 
the  war,  and  very  agreeable  to  the  bank  directors,  as 
enhancing  their  profits.* 

A  bank  then,  of  ten,  or  at  the  utmost,  fifteen  millions 
of  dollars  capital,  of  which  one-third  might  belong  to 
the  government,  appears  to  be  amply  sufficient  for  per 
forming  the  fiscal  operations  of  the  government.  It 
should  be  restricted  within  that  sum.  The  circulation 
should  not  exceed  ten  millions  of  dollars. 

It  should  be  a,  bank  of  safety  rather  than  profit.  It 
is  not  desirable  that  its  dividends  should  exceed  six,  or 
at  the  utmost  seven  per  cent.  A  reasonable  assurance 
of  that  rate  would  be  sufficient  to  induce  capitalists  to 
take  up  the  stock.  There  are  objections  to  limiting 
the  dividends  by  law,  as  it  might  induce  extravagance 
in  salaries,  or  carelessness  in  the  management.  Possi 
bly,  however,  it  would  not  be  objectionable,  that  the 
surplus  should  be  allowed  to  accumulate  for  a  period  of 
years,  then  to  be  equally  divided  between  the  govern 
ment  and  the  stockholders. 

It  is  believed,  however,  that  the  establishment  of 
even  such  a  bank  had  better  be  postponed  until  the 
currency  shall  be  restored  in  the  Atlantic  cities.  The 
resumption  of  specie  payments  in  Philadelphia  and 
Baltimore,  can  hardly  be  delayed  much  longer,  now 

*  BANK  OP  ENGLAND. 

Bullion,  31  Aug.,  1796,  2,122,950— circulation  and  deposits,  15,090,110 
"  "  1798,  6,546,100 —          "  "          20,481,330 

"  "  1799,  7,000,780—          «  «          21,031,730 

There  can  be  110  question  of  the  perfect  ability  of  the  bank  to  resume  at 
either  of  the  two  latter  periods. 

The  loans  during  the  war,  were  negotiated  on  the  average,  at  about  60  for 
3  per  cents;  that  is,  the  government  received  £60,  and  issued  stock  for  £100, 
bearing  3  per  cent,  interest  per  annum.  In  1810,  the  currency  was  depreciated 
25  per  cent.,  so  that  the  £60  was  only  worth  £45.  In  1825,  the  currency  had 
been  restored,  and  3  per  cents  were  worth  £95  in  gold  ;  so  that  the  lender  of 
£45  received  in  15  years,  £45  interest,  and  £95  principal  at  the  end  of  that 
period.  Equal  to  an  annual  interest  of  about  10  per  cent. 


that  the  great  advocate  of  non-resumption  is  out  of  the 
Avay.  The  attempt  to  establish  a  national  bank  will  be 
a  decided  obstacle  in  the  way  of  such  resumption.  It 
can  only  be  established  by  the  accumulation  of  a  specie 
capital.  The  want  of  sufficient  specie  in  the  vaults  of 
their  banks  is  the  only  plausible  ground  for  continued 
suspension  in  Philadelphia  and  Baltimore.  An  addi 
tional  demand  for  the  coin  which  they  want,  can  only 
add  to  the  difficulty  of  their  obtaining  it.  At  the  same 
time,  it  will  be  much  easier  to  put  a  national  bank  in 
operation  after  the  currency  shall  be  re-established  than 
before.  The  details  of  such  a  bank  will  require  time 
to  mature.  Its  establishment  is  the  last  thing  to  be 
done  in  haste — or  as  a  mere  party  measure. 

In  the  meantime,  a  repeal  or  modification  of  the  sub- 
treasury  system  would  be  desirable.  The  sub-treasury 
system  is  founded  on  mistaken  views  of  the  currency — 
it  seems  to  suppose  that  coin  is  letter  than  the  notes  of 
specie-paying  banks,  whereas  in  truth  the  notes  are 
preferable  to  coin,  so  long  as  they  contain  the  power  to 
command  it.  There  can  be  no  doubt  that  banks, 
selected  for  their  solidity,  are  safer  depositories  of  the 
public  money  than  any  individuals  whatever.  The  idea 
of  keeping  it  piled  up  in  a  separate  mass,  in  this  bank 
ing  country,  is  absurd  and  puerile.  The  sub-treasury 
law  gives  a  sort  of  legal  character  to  bank  notes  which 
is  highly  objectionable.  By  law  all  payments  are  only 
dischargeable  in  the  legal  coin,  whether  to  the  govern 
ment  or  individuals.  The  banks,  acting  as  the  common 
agents  of  the  community,  employ  the  labor-saving  ma 
chinery  which  their  establishment  has  brought  to  so 
great  perfection  in  bringing  about  these  payments.  At 
the  same  time  it  is  no  improper  figure  of  speech  to  say 
that  every  payment  made  in  well  regulated  specie- 
paying  banks,  like  those  doing  business  in  New  York 


36 

or  Boston,  is  actually  made  in  specie.  No  bank  re 
ceives  anything  which  is  not  equivalent  to  coin — which 
will  not  command  coin,  and  for  which  it  is  not  willing 
to  pay  in  coin.  The  sub-treasury  law,  therefore,  by 
compelling  the  sub-treasurers  to  receive  certain  bank 
notes,  imposes  a  risk  of  loss  by  bank  failures,  which 
does  not  exist  under  the  employment  of  strong  banks. 
So  far  as  it  requires  both  debtors  and  creditors  of  the 
government  to  count  their  payments  and  receipts  in 
actual  coin,  it  is  a  retrograde  movement  in  civilization. 
It  is  a  refusal  to  adopt  the  improvements  of  the  age. 
The  great  objection  to  the  pet-bank  system,  as  it  was 
called,  was  the  employment  of  banks  not  for  their 
safety,  but  for  their  politics — the  distributing  the  pub 
lic  money  for  the  purposes  of  party. 

[The  establishment  of  the  sub-treasury  system  was  a 
hazardous  experiment.  But  for  the  famine  in  Europe 
in  1847,  which  brought  over  twenty  millions  in  gold 
into  the  country,  it  would  have  caused  a  tremendous 
pecuniary  crisis.  Being  now  established,  no  one  would 
wish  to  disturb  it.] 


IMPROVEMENTS     IN    THE    BANKING    SYSTEM. 

Our  banking  system  is  the  subject  of  undeserved 
abuse.  The  system  is  better  than  the  practice  under 
it.  The  toleration  of  abuses  under  the  system  is  the 
great  evil.  Still  there  are  faults  in  it  which  might  be 
remedied.  One  evil  is  the  multiplicity  of  banks  au 
thorized  to  issue  notes  for  circulation.  All  experience 
shows  the  necessity  of  legislative  restraint  upon  the 
issue  of  notes  for  the  purpose  of  circulation.  The  pub 
lic  security  requires  it.  But  under  the  present  system, 
that  security  is  wholly  inadequate  in  most  of  the  States 


37 

where  banks  with  very  small  capitals,  and  those  fre 
quently  nominal,  are  permitted  to  issue  notes. 

No  bank  should  be  permitted  to  issue  notes  without 
a  solid,  paid  up  capital,  greatly  exceeding  its  issues.  A 
capital  of  half  a  million  of  dollars  is  the  very  least  to 
which  this  privilege  should  be  granted.  New  York 
has  adopted  a  system  of  requiring  a  deposit  of  stocks 
as  security  for  the  payment  of  bank  notes — but  the  law 
is  deficient  in  making  no  certain  capital  necessary  to 
carrying  on  the  business  of  banking,  and  the  public 
have  suffered  losses  by  the  failure  of  the  free  banks,  as 
they  are  called,  from  the  circumstance  of  the  deprecia 
tion  or  inadequacy  of  the  stocks  deposited.  But  the 
New  York  system  has  one  advantage — its  evils  cure 
themselves.  The  idea  that  banking  can  be  carried  on 
without  capital  has  been  pretty  fairly  exploded  under 
the  experiment.  [The  great  objection  to  the  New-York 
system  is  that  it  requires  a  double  capital,  one  for  the 
purchase  of  stocks,  another  for  the  redemption  of  their 
bills,  increasing  the  pressure  upon  them  under  a  revul 
sion.] 

The  great  and  difficult  problem  in  a  currency  of  bank 
paper,  is  the  prevention  of  those  fluctuations,  to  which 
experience  shows  such  a  currency  is  liable,  in  a  far 
greater  degree  than  a  currency  composed  wholly  of  the 
precious  metals.  This  problem  has  not  been  solved. 
The  attention  of  the  British  Parliament  has  been  for 
some  time  drawn  to  it.  A  committee  have  published  a 
voluminous  report  of  evidence  taken  at  the  last  session, 
which  certainly  does  not  shed  much  light  upon  the 
matter.  Their  inquiries  are  still  going  on.  The  writer 
has  thought  a  good  deal  on  the  subject,  and  is  of  opin 
ion  that  no  better  remedy  can  be  devised  against  a 
redundant  or  excessive  circulation,  than  the  levying  a 
tax.  by  the  State,  on  the  privilege  or  right  of  circula- 


38 

tion,  to  very  near  the  amount  of  benefit  or  profit 
derivable  from  it.  Nearly  all  the  States  require  some 
thing  in  the  nature  of  a  bonus  or  tax  for  the  privilege 
of  a  bank  charter,  but  on  principles  wholly  capricious 
or  unsettled;  whilst  in  others,  the  granting  them  is 
made  a  matter  of  favoritism,  under  the  odious  charac 
ter  of  monopoly.  Many  advantages  would  arise  from 
establishing  the  principle  that  every  bank  chartered 
with  the  right  of  circulation  should  pay  a  fixed  tax  on 
the  amount  permitted.  The  right  to  regulate  the  cur 
rency  of  bank  notes  seems  properly  to  belong  to  the 
State,  and  to  be  a  legitimate  source  of  revenue. 

The  State  of  Massachusetts  levies  a  fixed  tax  of  one 
per  cent,  per  annum  upon  bank  capital.  This  tax  is 
excessive  in  amount — is  levied  upon  a  false  principle, 
and  produces  some  evils.  A  tax  of  three  per  cent,  per 
annum  on  circulation,  would  produce  nearly  the  same 
amount  of  revenue,  and  be  wholly  unobjectionable  in 
principle.  The  advantage  of  a  tax  upon  circulation 
would  be,  that  it  would  take  away  the  inducement  of 
profit,  which  every  bank  now  has,  to  increase  its  circu 
lation  to  the  utmost — until  the  expansion  of  the  cur 
rency  shows  itself  in  the  export  of  coin — which  can 
only  be  checked  by  a  suspension  of  discounts,  and  a 
pressure  on  the  money  market.  The  bank,  to  be  sure, 
has  no  difficulty  itself  in  this  case,  if  well  managed. 
The  whole  pressure  is  thrown  on  the  mercantile  com 
munity. 

But  these  alternations  of  bank  expansion  and  nomi 
nal  prosperity,  followed  by  bank  contractions,  disap 
pointment,  and  perhaps  failures,  are  very  much  to  be 
deprecated.  A  tax  upon  circulation  might  do  much  in 
checking  undue  expansion.  A  fixed  minimum  capital, 
and  a  fixed  rate  of  tax  upon  circulation,  would  take 
away  the  character  of  monopoly  from  bank  legislation 


39 

— as  charters  might  then  be  granted  to  all  who  would 
take  them,  sufficient  care  being  had  to  see  the  capital 
actually  paid  in. 

Some  of  the  States  have  gone  into  the  business  of 
banking  on  their  own  account.  It  requires  no  great 
spirit  of  prophecy  to  foresee  that  their  banks  will  be 
badly  managed,  and  the  States  become  losers  by  the 
business.  Banks,  to  be  useful,  must  be  founded  on 
real  capital,  and,  to  be  well  managed,  must  be  under 
the  eye  of  the  owners  of  the  capital. 

The  law  of  1834,  by  which  such  a  valuation  wras  put 
upon  gold  as  makes  it  the  essential  basis  of  our  circu 
lation,  is  calculated  to  have  a  highly  favorable  effect  in 
giving  steadiness  to  the  currency  by  enlarging  that 
basis ;  it  being  necessary  for  the  banks  to  maintain  on 
hand  a  greater  quantity  of  coin,  on  account  of  the  fa 
cility  of  transfer  attaching  to  that  metal  as  compared 
to  silver.  This  effect  will  be  increased,  should  an 
error,  apparently  inadvertent,  in  that  bill  be  corrected, 
by  which  too  high  a  valuation  is  put  upon  foreign  gold, 
compared  to  our  own  coin.*  The  consequence  of  this 
error  is  that  there  is  a  positive  loss  of  about  one-fifth  of 
one  per  cent,  in  sending  foreign  gold  to  the  mint, 
whereas  the  law  should  have  been  so  framed  as  to 
make  it  for  the  interest  of  the  holders  of  such  coin  to 
do  it.  The  reduction  of  the  valuation  of  sovereigns 
and  napoleons,  about  one-half  of  one  per  cent.,  would 
remedy  the  evil,  and  give  us  an  actual  currency  of 
eagles  and  half  eagles  as  the  payment  which  banks 
would  find  it  for  their  interest  to  make  for  demands  on 
them.  The  effect  cannot  be  doubted — it  would  add 
materially  to  the  specie  in  the  country,  and  thus  reduce 
the  disproportion  which  paper  bears  to  coin,  which  is 
the  great  vice  in  our  system. 

*  Since  corrected. 


40 

Another  mode  of  giving  additional  security  to  the 
currency,  would  be  the  establishment  of  a  system  of 
more  frequent  and  rigid  settlement  of  balances  between 
the  banks  themselves.  The  safe  and  prudent  banks 
should  use  the  power  which  they  possess,  to  keep  in 
check  the  bolder  and  weaker  banks,  by  calling  for  their 
balances  weekly,  if  not  daily,  in  actual  coin.  The  sys 
tem  which  has  grown  up  of  letting  bank  balances  lie 
until  a  foreign  demand  for  coin  appears,  should  be 
abandoned.  It  is  liable  to  abuse,  and  it  is  the  duty  of 
the  strong  banks  to  put  an  end  to  it. 

A  timid  apprehension  of  weakness  on  the  part  of 
certain  banks  in  Boston,  with  a  cautious  endeavor  to 
avoid  losses  in  case  of  explosion,  led  to  much  of  the 
expansion  in  1836.  A  different  policy  might  have 
prevented  the  panic  and  suspension  of  1837. 

No  expectation  of  forbearance  or  indulgence  should 
be  encouraged.  Favor  and  benevolence  are  not  the 

o 

attributes  of  good  banking.  Strict  justice  and  the 
rigid  performance  of  contracts  are  its  proper  founda 
tion. 

A  repeal  of  the  usury  laws,  so  far  as  relates  to  notes 
of  hand  and  bills  of  exchange,  similar  to  that  which 
took  place  in  England  in  1832,  would  undoubtedly 
have  a  highly  beneficial  effect  in  lessening  the  violence 
of  a  monied  pressure,  as  there  is  abundant  evidence  it 
has  done  in  that  country.  The  pertinacity  with  which 
all  the  States  cling  to  the  usury  laws,  the  remnant  of 
the  old  feudal  opinion  that  the  people  cannot  be  trusted 
to  take  care  of  their  own  interests,  is  remarkable — 
especially  after  the  example  has  been  set  by  England. 
In  the  late  report  made  to  Parliament  on  banks  of 
issue,  we  find  the  testimony  of  Messrs.  Norman,  Tooke, 
and  Lloyd,  uniform  in  favor  of  the  effect  of  the  modi- 


41 

fication  made  in  the  law.  in  relieving  tlic  violence  of  a 
revulsion  in  the  money  market. 

A  bankrupt  law  applicable  to  banks  would  undoubt 
edly  be  the  most  efficient  of  measures  for  preventing 
suspensions  of  specie  payments,  and  keeping  banks 
within  reasonable  limits.  Such  a  law,  to  go  into  effect 
in  twelve  months,  would  be  the  most  effectual  of 
measures  for  restoring  and  regulating  the  currency — to 
apply  to  a  continued  suspension  of  payment  for  thirty 
days.  Constitutional  objections  have  been  suggested, 
but  without  much  apparent  force.  Apparently  nothing 
in  the  power  of  Congress  would  be  so  decidedly  effec 
tual  as  the  establishment  of  such  a  law. 


APPENDIX. 


EXTRACTS  FROM  A  PAMPHLET  PUBLISHED  IN  1831,  (BY  THE  SAME  AUTHOR) 
ENTITLED  AN  EXAMINATION  OF  THE  BANKING  SYSTEM  OF  MASSACHUSETTS  IN 
REFERENCE  TO  THE  RENEWAL  OF  THE  BANK  CHARTERS. 


The  issuing  bank  notes  for  circulation  is  incidental  to  the  business 
of  banking,  but  does  not  make  a  necessary  part  of  it.  The  famous 
Bank  of  Amsterdam  never  issued  notes.  The  Bank  of  England  does 
so  to  a  great  extent.  The  bankers  of  London,  however,  never  issue 
notes.  In  France,  with  numerous  rich  bankers,  there  is  no  paper 
circulation  except  by  the  Bank  of  France. 

In  the  United  States  there  has  never,  probably,  been  a  bank 
established  which  has  not  issued  notes  for  circulation.  In  fact,  the 
issuing  such  notes  is  most  frequently  the  leading  object  and  motive. 
It  may  well  be  questioned,  however,  whether  it  would  not  be  an 
improvement  in  our  system  to  separate  in  many  cases  the  right  of 
issuing  notes  for  circulation  from  the  other  branches  of  banking. 

The  public  have  a  deep  interest  in  the  solidity  and  good  manage 
ment  of  a  bank  of  circulation,  whilst  they  have  comparatively  none 
in  the  management  of  a  bank  employing  their  own  funds  in  making 
discounts  only,  or  in  buying  or  selling  bills  of  exchange.  It  would 
seem,  therefore,  that  the  banks  of  the  first  class  should  be  established 
on  a  principle  of  safety  which  might  be  dispensed  with  in  respect  to 
those  of  the  second  class. 

It  has  not  been  uncommon  for  banks  to  have  been  gotten  up,  with 
a  view  to  furnish  funds  for  private  speculation,  or  the  private  use  of 
the  principal  stockholders ;  or  the  same  object  has  been  sometimes 
accomplished  by  buying  up  a  majority  of  the  stock,  so  as  to  control 
the  choice  of  directors.  It  is  obvious,  that  banks  so  situated,  furnish 
a  very  unsafe  circulating  medium,  since  the  solvency  of  the  bank  de 
pends  on  the  success  and  solvency  of  the  principal  stockholders,  who, 
in  such  cases,  are  usually  the  directors.  It  is  believed,  that  in  all 


44 

cases  of  bank  failures  in  Massachusetts,  the  failure  of  the  principal 
stockholders  and  directors  has  accompanied,  or  preceded,  the  failure 
of  the  bank.  The  great  point,  therefore,  to  be  guarded  against,  is, 
the  liability  of  banks  to  fall  into  few  hands,  to  be  used  for  their  pri 
vate  speculations. 

This  cannot  be  prevented  by  legislative  provisions,  under  the 
present  system.  The  only  proper  security  is  a  large  real  capital. 
The  return  of  the  amount  loaned  on  the  stock  of  a  bank  as  collat 
eral,  furnishes  no  criterion  of  the  amount  of  actual  capital ;  accom 
modation  notes  are  as  easily  discounted  as  notes  secured  by  stock. 
The  whole  security  lies  in  A  LARGE  CAPITAL  AND  A  SMALL  CIRCU 
LATION.  A  bank  with  large  capital  can  hardly  be  controlled  by  any 
set  of  speculators,  certainly  not  by  those  possessing  little  or  no  prop 
erty. 

The  change  proposed  in  our  system  is,  that  no  bank  should  be 
allowed  to  issue  notes  for  circulation,  having  less  than  a  given  amount 
of  capital — say  a  million  of  dollars,  or  at  the  very  lowest,  certainly 
half  a  million.  The  right  to  issue  notes  should  be  restricted  to  one- 
third  the  amount  of  capital. 

The  effect  of  this  change  would  be,  that  no  banks  of  circulation 
would  be  established,  except  in  the  large  commercial  towns,  in  Mas 
sachusetts,  perhaps  only  in  Boston.  This  would  insure  them  to  be 
founded  on  real  capital,  the  most  important  consideration.  Large 
institutions  of  this  sort,  in  the  midst  of  an  active  mercantile  commu 
nity,  are  under  a  surveillance,  which  is  the  best  possible  guarantee  to 
the  public  for  the  correctness  of  their  management.  There  can  be 
no  better  security  for  a  circulation  of  paper,  than  institutions  of  this 
description  would  offer.  They  would  also  afford  the  best  possible 
security  against  a  currency  depreciated  on  account  of  its  being  paya 
ble  at  improper  places ;  as  it  would  be  obviously  for  the  interest  of 
such  institutions,  if  not  situated  in  Boston,  to  make  their  bills  redeem 
able  there. 

An  important  advantage  in  favor  of  this  system,  would  be,  the 
lessening  the  number  of  the  different  descriptions  of  bank  notes  in 
circulation,  which  would  very  much  lessen  the  difficulty  of  detecting 
counterfeits,  and  the  trouble  and  labor  attending  the  business  of  cir 
culation  as  now  carried  on. 

There  can  be  no  doubt  that  the  plan  proposed  would  furnish  a 
safer,  and  more  perfect  circulation,  than  exists  under  our  present 
system  ;  but  it  is  not  to  be  disguised  that  there  are  serious  difficul 
ties  in  the  way  of  introducing  the  change.  One  is,  its  interference 
with  existing  institutions,  which  look  for  the  renewal  of  their  char- 


45 

ters,  and  with  the  individual  interests  connected  with  them.  Another, 
and  the  most  formidable,  its  bearing  upon  the  revenue  of  the  State, 
derived  from  the  bank  tax,  under  the  present  system. 

So  far  as  regards  existing  institutions,  in  very  many  cases,  the 
change  would  not  be  to  their  disadvantage ;  many  banks  would  gladly 
give  up  the  privilege  of  issuing  bank  notes,  could  they,  by  so  doing, 
be  relieved  from  the  bank  tax.  In  fact,  this  change  would  be  rather 
advantageous  than  otherwise,  to  all  banks  operating  upon  real  capital, 
and  situated  in  places  requiring  bank  operations.  Those,  whose  chief 
or  only  business  is  the  supplying  a  speculative  circulation,  would"  be 
deprived  of  that  business,  and  a  few  might  give  up  their  charters 
altogether ;  but  the  profits  derived  from  any  description  of  banks  are 
now  so  small,  that  the  private  interests,  affected  by  a  change,  would 
not  probably  present  a  very  serious  obstacle,  provided  the  change 
shall  appear  decidedly  for  the  public  good. 

The  subject  of  the  tax  requires  a  more  serious  consideration. 

The  State  of  Massachusetts  levies,  upon  all  the  banks  in  the  State, 
a  tax  of  one  per  cent,  per  annum  upon  the  amount  of  capital  paid  in. 
Under  any  point  of  view,  the  tax  must  be  considered  excessive.  The 
bank  charters  imposing  it  were  accepted  in  1812,  a  time  of  great 
political  excitement,  which  involved  other  considerations  than  mere 
pecuniary  interest.  Its  expediency,  in  the  full  extent  of  it,  has  often 
been  called  in  question,  its  constitutionality  sometimes.  As  a  mere 
tax  upon  property,  it  cannot  be  reconciled  with  the  provisions  of  the 
constitution  ;  since  the  proprietors  of  bank  stock  are  liable  to  be  taxed 
for  its  value  in  common  with  other  property,  in  every  general  assess 
ment  of  taxes.  It  can  only  be  justified,  as  the  grant  of  a  privilege 
under  a  right,  especially  belonging  to  the  State,  in  its  sovereign  ca 
pacity,  that  of  regulating  the  currency.  It  is  true,  that  the  right  of 
coining  money,  and  of  regulating  the  value  of  our  own,  and  foreign 
coins,  has  been  transferred  to  the  General  Government  by  the  con 
stitution  of  the  United  States.  But  the  right  of  prohibiting  and  reg 
ulating  the  issue  of  notes,  or  obligations,  intended  to  pass  as  a  cur 
rency,  must  be  considered  as  retained  by  the  individual  States. 

There  is  no  conflict  of  rights  in  this  construction ;  the  term  cur 
rency,  as  used  in  common  parlance,  has  two  characters  altogether 
distinct  and  different.  The  legal  currency  consists  only  of  the  coins 
made  current  by  law,  and  is  entirely  under  the  control  of  the  United 
States.  Bank  notes  may  be  considered  a  conventional  currency  ; 
they  have  no  legal  character  as  such,  but  depend  for  circulation, 
wholly  on  the  choice  or  pleasure  of  the  receiver. 

The  use  of  this   right  of  regulating    the    currency   of  bank  notes, 


46 

would  seem  to  be  a  proper  source,  from  which  to  raise  a  public  rev 
enue  to  any  practicable  extent.  The  benefit  of  bank  circulation 
seems  properly  and  peculiarly  to  belong  to  the  public,  and  to  be  a 
legitimate  source  of  public  revenue  ;  as  the  prohibition  of  issuing 
such  notes,  by  individuals  or  associations,  without  authority,  is  a 
matter  of  public  interest,  and  a  proper  protection  against  the  losses, 
to  which  the  community  would  otherwise  be  subject. 

The  business  of  banking  (separate  from  the  issue  of  bank  note?)  is 
a  necessary  branch  of  mercantile  operations,  resulting  from  a  proper 
division  of  labor.  A  bank  is  employed,  by  the  merchants  and 
traders,  to  collect  and  keep  safe  their  moneys,  and  to  make  their  pay 
ments  ;  for  which  purpose  it  becomes  necessary  to  build  secure 
vaults,  and  to  employ  a  number  of  clerks  and  faithful  officers.  It  is 
true,  that  when  a  bank  keeps  the  cash  of  a  great  number  of  persons, 
the  payments  which  are  made  by  one,  go  frequently  to  the  credit  of 
another,  so  that  the  amount  held  in  deposit  is  not  subject  to  very 
material  variation,  nor  liable  to  be  called  for  at  once.  It  is,  therefore, 
agreed  between  the  parties,  that  the  bank  is  at  liberty  to  loan  such 
portion  of  their  deposits  as  they  think  proper,  only  taking  care  to  be 
able  to  furnish  to  each  individual  depositor  his  entire  deposit  on  de 
mand.  In  this  way  the  bank  is  enabled  to  collect,  keep,  and  pay 
away  the  money  of  the  merchant  without  making  any  charge  for  the 
trouble  of  doing  so ;  in  fact,  it  is  frequently  the  source  of  very  consid 
erable  profit. 

It  may  at  first  sight  be  thought  that  this  source  of  profit,  the 
receiving  money  in  deposit,  affords  a  proper  subject  of  taxation ;  but 
a  slight  examination  will  show,  that  this  ground  is  not  tenable.  As 
an  original  proposition,  nothing  would  appear  more  absurd.  If  banks 
derive  a  profit  which  they  are  not  entitled  to,  from  holding  in  deposit 
the  property  of  other  persons,  it  is  those  other  persons,  whose  money 
is  lying  unproductive,  who  are  entitled  to  the  profit,  not  the  State  at 
large.  It  is  an  affair  between  the  parties,  with  which  the  public  have 
nothing  to  do.  If  my  banker  do  not  transact  my  business  on  as  good 
terms  as  he  can  afford  to  do,  it  does  not  give  the  legislature  a  right  to 
step  in,  and  claim  those  extra  profits,  which  in  fairness  belong  to  me ; 
much  less  should  the  legislature  come  between  us,  and  claim  a 
douceur  for  allowing  us  to  transact  our  business  together,  thus  putting 
it  out  of  the  power  of  the  bank  to  do  my  business  on  as  good  terms 
as  it  would  otherwise  be  glad  to  do.  In  some  parts  of  England,  it  is 
the  custom  for  bankers  to  allow  full  interest  on  balances  in  their 
hands,  and  charge  a  commission  for  transacting  the  business.  The 


47 

Scotch  banks   allow   interest  on   all  deposits,  but  at  a  rate  one  per 
cent,  below  that  which  they  charge  to  their  borrowers. 

The  prohibition  of  individuals  or  associations  from  loaning  money 
or  making  discounts  without  paying  a  tax  for  the  privilege  of  doing 
so,  is  even  more  objectionable,  it  being  a  direct  interference  with 
private  right,  and  opposed  to  every  sound  principle  of  political  econ 
omy,  inasmuch  as  the  obvious  tendency  of  such  a  measure  is  to  drive 
capital  out  of  the  State. 

The  principle  of  our  government,  and  of  all  free  governments,  is, 
that  all  property  should  contribute  equally  to  the  support  of  the  gov 
ernment  which  affords  it  protection.  The  power  of  taxation,  given 
to  the  General  Court  by  the  Constitution  of  Massachusetts,  is  limited 
by  this  rule  as  strictly  as  language  can  do  it.  It  may  not  be  possible, 
in  all  cases,  practically  to  apply  the  principle  with  perfect  equality  ; 
but  it  is  highly  important  that  the  principle  itself  should  never  be 
lost  sight  of.  Every  attempt  to  levy  a  tax  on  any  class  or  profession, 
as  such,  or  on  any  one  description  of  property,  should  be  resisted  as 
a  violation  of  the  free  and  equal  principles  of  our  government. 
Should  any  such  tax  have  been  adopted,  it  ought  to  be  abandoned 
the  moment  its  true  character  is  discovered. 

The  idea  has  sometimes  been  advanced,  that  a  tax  might  be  levied 
for  the  privilege  of  an  act  of  incorporation.  This  is  a  dangerous 
doctrine,  and  ought  to  be  put  down  as  equally  opposed  to  the  spirit 
of  our  institutions.  Government  is  established  and  supported  for  the 
common  benefit  of  all.  The  good  of  all  is  made  up  of  the  good  of 
each  and  every  one  ;  if  the  facility  arising  from  an  act  of  incor 
poration  will  promote  the  good  of  the  parties  asking  for  it,  who 
are  the  only  proper  judges,  and  if  no  improper  injury  to  others  is 
to  be  apprehended  from  it,  the  legislature  is  bound  to  grant  it ;  and 
if  granted  at  all,  it  should  be  granted  without  tax.  A  contrary  prac 
tice  would  lead  to  the  worst  evil  of  the  worst  governments,  a  price 
upon  legislation  ;  a  price  would  be  paid  for  monopolies,  and  monopo 
lies  would  be  granted  for  a  price. 

If  this  reasoning  is  correct,  the  only  ground  on  which  the  bank 
tax  can  be  justified,  is,  that  it  is  a  tax  upon  bank  circulation.  Such 
a  tax  is  justifiable  and  proper;  it  is  a  tax  upon  the  gain,  derived  from 
the  substitution  of  bank  notes  for  specie,  as  a  circulating  medium, 
and  which  seems,  of  right,  to  belong  to  the  body  politic,  rather  than 
to  any  number  of  individuals.  It  is  a  tax  of  perfect  equality.  The 
office  of  the  circulating  medium  is  to  facilitate  the  exchange  of  com 
modities  ;  all  property  exchanged  under  the  process  of  circulation, 
contributes  equally  to  the  tax  imposed  upon  it. 


48 

It  is  entirely  otherwise  with  a  tax  upon  bank  deposits,  or  bank 
discounts ;  a  tax  upon  bank  deposits  is  a  tax  upon  the  small  number 
of  individuals,  owning  the  money  deposited.  But  for  this  tax,  the 
banks  would  allow  to  their  depositors,  as  interest,  all  which  they  can 
afford  to  pay  the  State,  as  a  tax.  Such  would  be  the  necessary  effect 
of  a  free  competition. 

Bank  capital  consists  of  money,  which  the  proprietors  do  not 
choose  to  employ  themselves,  but  have  established  as  a  fund,  to  be 
employed  by  the  active  and  enterprising  classes  of  society.  It  is 
thus  placed  where  those  classes  can  command  it,  at  their  pleasure, 
either  in  the  way  of  loan,  or  by  discounting  their  business  paper. 
Abundance  of  such  capital  is,  in  the  highest  degree,  favorable  to 
public  prosperity,  by  exciting  industry  and  extending  trade.  A  tax 
upon  bank  capital,  as  such,  is  a  tax  upon  the  fund  destined  to  pay  the 
wages  of  labor,  and  to  keep  in  motion  the  wrheels  of  commerce  ;  it 
thus  operates  unfavorably  upon  all  industry,  and  upon  all  trade ;  in 
other  words,  upon  all  the  interests  of  the  Commonwealth.*  Abundance 
and  cheapness  of  capital,  and  high  wages  of  labor,  act  favorably  and 
reciprocally  upon  each  other,  and,  when  united,  are  evidence  of  the 
happiest  condition  of  political  society.  High  wages  stimulate  indus 
try,  and  thus  add  to  the  accumulation  of  comforts  and  capital ;  a  tax 
upon  bank  capital,  therefore,  is  an  indirect  tax  upon  the  working 
classes  of  society.  Any  mode  of  raising  revenue  is  preferable  to  one 
which  touches  the  vital  springs  of  industry/}" 

Circulation,  therefore,  being  the  only  proper  ground  of  bank  taxa 
tion,  it  becomes  a  matter  of  interest  to  ascertain  how  far  the  present 
tax,  under  the  present  system,  can  be  applied  to  the  circulation,  and 
what  would  be  the  effect  upon  the  revenue  of  a  change  which  should 
place  the  tax  directly  upon  its  proper  object. 

A  fair  estimate  of  the  annual  revenue,  which  might  be  derived 
from  bank  circulation,  may  be  considered  three  per  cent,  on  its 
amount.  The  average  amount  of  specie,  which  it  is  necessary  for  a 
bank  to  keep  on  hand,  in  order  to  support  a  safe  circulation,  may  be 
taken  at  twenty  per  cent,  or  one-fifth  of  the  amount  of  bills  in  circu 
lation.  At  the  present  rate  of  the  interest  of  money,  this  would 
leave  the  bank  two  per  cent.,  to  cover  the  expense  of  preparing  bills, 

*  "  It  is  the  circulating  capital  (money)  which  furnishes  the  materials  and 
wages  of  labor,  and  puts  industry  into  motion." — Smith's  Wealth  of  Nations. 

f  "  The  experience  of  all  ages  and  nations  proves,  that  high  wages  are  at 
once  the  keenest  spur,  the  most  powerful  stimulus  to  unremitting  and  assidu 
ous  exertions,  and  the  best  means  of  attaching  the  people  to  the  institutions 
under  which  they  live." — McCulloch's  Political  Economy. 


49 

and  as  a  profit.  T\\h  may  be  thought  rather  inadequate,  but  may  be 
considered  a  fair  estimate  of  the  tax  which  might  be  levied  for  the 
privilege  of  circulation,  and  which  the  banks  would  cheerfully  pay. 

The  last  return  of  the  banks  of  Massachusetts,  October,  1856,  pre 
sents  the  following  results,  fractions  omitted  : — 

Amount  of  capital  in  Boston,     -  -       $31,900,000 

Out  of  Boston,  -  26,638,000 


58,598,000 

Circulation  in  Boston,       -  $  8,259,915 

"          out  of  Boston,          -         -         -         18,284,400 


26,544,315 
Deduct  bills  of  other  banks  on  hand,          -  5,248,379 


Net  circulation,  -       $21,295,936 


A  tax  of  one  per  cent,  on  capital,  $585,980 

A  tax  of  three  per  cent,  on  circulation,  638,870 

It  must  be  considered  a  very  sober  and  safe  ground,  to  assume, 
that  a  tax  of  three  per  cent,  upon  circulation,  will  be  more  produc 
tive,  during  a  period  of  ten  or  twenty  years,  than  a  tax  of  one  per 
cent,  upon  capital,  according  to  the  present  system. 

The  adoption  of  the  principle  of  levying  the  bank  tax  upon  circu 
lation,  may  be  made  very  simple  and  easy  in  its  details.  It  may,  or 
may  not  be  combined  with  the  principle  of  confining  the  right  of 
issuing  notes  to  banks  of  large  capital.  There  can  be  no  doubt,  the 
doing  so  would  establish  the  most  perfect  system  ;  in  which  case, 
suppose  600,000  dollars  fixed  as  the  minimum  capital  for  a  bank  of 
circulation,  and  200,000  dollars  fixed  as  the  minimum  amount  for 
which  the  privilege  of  circulation  should  be  granted  ;  the  tax  will  be 
6.000  dollars  per  annum.  The  situation  of  a  bank,  now  existing, 
with  this  amount  of  capital,  would  not  be  changed  at  all.  Additional 
capital  should  be  allowed,  to  any  extent,  without  tax  ;  and  an  addi 
tional  right  of  circulation,  with  a  proportionate  increase  of  tax  and 
capital. 

Should,  however,  this  change,  in  respect  to  the  right  of  issuing 
bank  notes  for  circulation,  be  thought  too  great  an  innovation  on  the 
present  system  of  banking,  while  the  principle  of  raising  a  revenue 
upon  the  right  of  circulation,  to  the  full  extent  of  its  value,  is  admit 
ted  as  the  proper  ground  of  taxation  upon  banks,  a  very  simple  opera- 


50 

tion  will  accomplish  the  object,  in  a  manner  wholly  unexceptionable 
in  principle, — equal  in  its  application  to  all  parties,  and  which  will 
not,  probably,  affect  the  revenue  at  all.  Let  the  present  banks  be 
re-chartered,  with  their  present  capitals,  but  reduce  the  amount  of 
bills,  which  they  shall  be  permitted  to  issue,  to  one-third  the  amount 
of  capital,  instead  of  the  present  limitation  ;  making  the  tax,  in  effect, 
three  per  cent,  upon  the  circulation  permitted.  This  will  very  much 
increase  the  security  of  the  public  ;  as  it  will  not  only  reduce  the 
amount  of  circulation,  compared  to  capital,  to  a  safe  standard,  but  will 
take  away  ail  inducement  to  establish  a  bank  for  the  sake  of  the  cir 
culation  ;  at  the  same  time  it  will  afford  no  bank  any  just  cause  of 
complaint,  as  it  will  put  all  on  a  ground  of  perfect  equality.  No  one 
can  doubt  that  the  bills,  issued  by  banks,  having  large  real  capitals, 
to  three  times  the  amount  of  their  issues,  are  safer  than  those  of 
small  banks,  issuing  bills  to  the  full  amount,  of  their  capitals,  many  of 
which  may  be  nearly  or  quite  nominal,  and  are  liable  to  be  devoted 
to  private  speculation. 

The  whole  question,  therefore,  resolves  itself  into  the  inquiry, 
whether  the  small  banks  have  any  proper  or  reasonable  ground  of 
complaint,  at  the  proposed  change.  An  answer  in  the  negative,  seems 
equally  plain  and  inevitable.  The  privilege  of  issuing  notes  for 
circulation,  is  worth  three  per  cent,  on  the  amount  allowed  to  be 
issued;  the  large  banks,  situated  in  the  natural  centre  of  circulation, 
are  willing  to  pay  that  price  for  it ;  shall  the  small  banks  have  this 
privilege,  at  a  less  rate,  than  the  large  banks  are  willing  to  pay  ? 
That  is  the  simple  question. 

The  only  argument,  on  the  other  side,  seems  to  be  ;  the  small 
banks  have  paid  but  two  per  cent,  for  the  privilege,  although  it  is 
worth  three, — the  large  banks  have  paid  5^  per  cent,  for  the  same 
privilege ;  one  party  has  become  used  to  a  loss,  the  other  to  a  profit. 
But  is  this  a  good  argument  for  persevering  in  a  system  of  so  much 
inequality? 

One  other  argument  may  be  used  in  favor  of  banks  situated  in 
distant  country  villages  ;  it  may  be  said,  that  they  cannot  afford  to 
issue  bills  on  the  same  terms  as  the  Boston  banks  ;  their  circulation 
being  forced  and  unnatural,  requires  extra  trouble  and  expense, — 
and  the  keeping  a  fund  of  money  in  Boston,  whither  the  bills  are 
constantly  tending  in  the  course  of  trade ;  while  the  bills  of  the  Bos 
ton  banks  circulate  freely,  and  require  no  nursing.  The  public  will 
judge,  whether  it  is  worth  while  to  give  up  a  system  of  safety,  sim 
plicity,  and  equality,  in  order  to  preserve  an  unnatural  circulation,  to 
a  few  such  institutions.  Wherever  there  is  real  capital,  and  a  field 


51 

for  monied  operations,  there  should  be  no  objection  to  the  change 
proposed  ;  since,  alter  making  the  tax  depend  on  the  privilege  of 
circulation,  corporations  should  be  freely  created,  with  the  privilege 
of  discounting  notes,  and  receiving  deposits  without  being  subject  to 
taxation.  They  might  be  made  subject  to  many  of  the  restrictions 
and  regulations,  now  imposed  upon  banks,  for  the  security  of  depos 
itors,  on  the  same  principle  that  they  are  imposed  upon  insurance 
and  manufacturing  companies.  Existing  banks  should  also  be  allow 
ed  to  increase  their  capital  to  any  extent,  without  tax,  unless  for  an 
extension  of  the  privilege  of  circulation. 

The  business  of  banking  should  be  open  to  as  free  a  competition 
as  any  other  branch  of  commercial  business  ;  there  should  be  nothing 
like  monopoly,  or  exclusiveness  about  it ;  there  should  be  no  restriction 
upon  any  amount  of  capital  going  into  it — the  more  the  better  for  the 
public — the  better  for  all  trade  and  for  all  industry.  Banks  act 
merely  as  convenient  brokers  between  the  owners  of  the  capital,  and 
the  persons  employing  it ;  the  cheaper  the  rate  at  which  they  are 
enabled  to  transact  the  business,  the  better  for  both  parties,  and  for 
every  body. 

It  has  been  sometimes  suggested,  that  large  chartered  companies, 
possess  a  dangerous  aristocratic  influence;  that  they  are  machines 
liable  to  be  controlled  by  the  rich  for  their  own  purposes,  and  dan 
gerous  to  our  republican  institutions.  This  opinion  can  only  arise 
from  a  superficial  view  of  the  subject.  No  more  ingenious  mode 
could  possibly  be  invented,  to  paralyze  the  power  of  individual 
wealth,  than  the  creation  of  monied  corporations,  where  the  property 
of  the  retired  capitalist  is  placed  at  the  disposal  of  the  active  men  of 
business  ;  for  such,  from  the  nature  of  the  case,  must  compose  the 
directors  of  these  companies.  What  power  does  the  original  owner 
of  the  capital  possess  over  it,  after  he  has  converted  it  into  bank 
stock  ?  None,  whatever,  except  as  a  director  ;  and  a  board  of  direc 
tors,  consisting  of  mere  capitalists,  would  be  wholly  unable  to  manage 
a  bank,  in  competition  with  the  young  and  active  members  of  the 
trading  community.  A  reference  to  the  list  of  bank  directors  in 
Boston,  will  prove  the  correctness  of  this  view.  There  are  amongst 
them,  some  few  men  of  experience  and  capital,  who  have  retired  from 
business,  but  the  chief  management  and  direction  is  always  in  the 
hands  of  those  deeply  engaged  in  the  bustle  of  business.  All  the 
sympathies  of  these  institutions  are  with  the  industrious  classes. 
There  is,  therefore,  no  danger  in  permitting  any  amount  of  capital  to 
flow  into  this  channel,  under  our  system  of  free  competition. 

A  monopoly  of  banking   is   the    most    dangerous    of    monopolies. 


Every  project,  therefore,  for  placing  the  banking  business  exclusively 
in  the  hands  of  great  national  or  state  institutions,  is  bad.  The  power 
of  compressing  or  expanding  the  circulating  medium,  is  too  tremen 
dous,  and  that  of  dispensing  bank  favors,  too  dangerous,  to  be  intrust 
ed  to  any  one  body  of  men. 

It  is  important,  that  the  institutions  which  supply  this  medium 
should  be  placed  beyond  the  influence  or  control  of  the  government. 
In  times  of  difficulty,  government  is  the  first  to  wish  for  the  facility  of 
an  inconvertible  paper  medium  of  circulation.  The  suspension  of 
specie  payments  in  1814,  was  owing  in  a  considerable  degree,  no 
doubt,  to  a  mistaken  public  opinion,  in  the  cities  of  New  York  and 
Philadelphia,  on  the  subject  of  currency ;  but  probably  quite  as 
much,  or  more,  to  sympathy  with  the  wants  and  necessities  of  the 
general  government,  in  the  then  disastrous  state  of  the  finances. 
The  best  security  against  a  suspension  of  specie  payments,  undoubt 
edly  is  an  enlightened  public  opinion,  acting  through  and  upon  nu 
merous  rival  banking  institutions.  It  was  public  opinion  which  sup 
ported  the  Boston  banks  in  adhering  to  a  sound  currency  in  1814. 
The  bank  failures  of  1809  had  taught  a  salutary  lesson.  The  public 
had  become  familiar  with  the  phrase,  suspension  of  specie  payments  ; 
and  had  ascertained  that  it  meant,  inability  to  pay.  It  is  to  be 
hoped  that  the  lamentable  consequences  of  the  suspension  of  1814, 
fully  developed  in  the  revulsion  of  1819,  will  at  least  have  the  effect 
to  preserve  the  whole  country  from  the  recurrence  of  a  similar 
calamity. 

Massachusetts  has  been  the  first  of  the  States  to  establish  nume 
rous  banks  with  small  capitals.  The  example  has  been  followed  by 
other  States,  and  with  like  consequences  of  depreciated  currencies 
and  bank  failures.  It  would  well  become  Massachusetts  to  be  the 
first  to  adopt  a  system  which  shall  prove  more  safe  and  creditable  to 
herself,  and  serve  as  a  better  model  to  others.  It  has  been  the  ob 
ject  of  the  preceding  pages  to  suggest  the  elements  of  such  a  system  ; 
which  may  be  summed  up  as  embodied  in  the  following  principles. 

1st.  The  only  proper  basis  of  bank  circulation  is  a  large  monied 
capital,  exclusively  appropriated  to  the  business  of  banking. 

2d.  Public  security. requires,  that  the  issues  of  a  bank  should  bear 
a  small  proportion  to  its  capital. 

3d.  Bank  notes,  to  constitute  a  sound  medium  of  general  circula 
tion,  must  be  payable  in  the  central  points  of  trade,  the  large  com 
mercial  cities. 

4th.  The  profits  derivable  from  the  circulation  of  bank  notes,  are 
a  legitimate  source  of  revenue  to  the  State  ;  but, 


53 

5th.  A  State  tax  upon  capital  employed  in  the  ordinary  business 
of  banking,  is  both  unjust  and  impolitic,  good  policy  requiring  that 
capital  should  be  allowed  to  flow  into  that  channel  with  perfect 
freedom. 

The  practical  application  of  these  principles  may  vary  in  different 
circumstances.  Taking  into  consideration  the  existing  banking 
institutions  of  this  Commonwealth,  the  simplest  and  most  practicable 
mode  of  applying  them  would  seem  to  be  that  which  has  been  sug 
gested  ;  the  renewal  of  the  charters  of  all  existing  banks,  with  their 
present  capitals,  limiting  the  right  of  circulation  to  one-third  the 
amount  of  capital,  leaving  them  subject  to  the  same  tax  as  at  pres 
ent,  being  equivalent  to  three  per  cent,  on  the  amount  to  which  their 
circulation  is  limited.  The  tax  in  all  cases  to  be  relinquished,  with  the 
relinquishment  of  the  rights  of  circulation,  and  no  tax  to  be  imposed 
on  additional  capital,  where  no  extension  of  the  right  of  circulation 
accompanies  it. 

How  far  these  views  shall  be  put  in  practice,  it  is  for  others  to  de 
cide.  At  all  events  it  is  exceedingly  important  that  the  legislature 
should  preserve  an  entire  control  over  the  bank  currency,  by  reserv 
ing  the  right  to  regulate,  by  any  general  law,  the  amount  of  bank 
issues  in  proportion  to  capital,  and  the  description  of  bills  which  may 
be  put  in  circulation.  There  can  be  no  objection  on  the  part  of  ex 
isting  banks  to  this  reservation,  so  long  as  they  are  left  at  liberty  to 
surrender  their  charters,  and  close  their  business,  whenever  they  are 
dissatisfied  with  the  terms  imposed  on  them.  It  is  unquestionably 
very  desirable,  that  the  proportion  of  paper  in  common  circulation 
should  be  diminished,  and  that  of  specie  increased.  There  is  no 
doubt  that  the  revulsions  in  the  money  market  are  more  sudden  and 
more  severe,  in  consequence  of  so  large  a  proportion  of  the  specie  in  the 
country  being  collected  in  the  vaults  of  the  banks  in  the  commercial 
cities,  instead  of  being  diffused  through  the  community.  A  turn  in  the 
exchanges,  which  causes  a  rapid  exportation  of  specie,  compels  the 
banks,  as  their  stock  of  coin  becomes  reduced  to  the  lowest  admissible 
point,  to  check  their  discounts  so  suddenly,  and  so  violently,  as  to 
produce  great  embarrassment  and  distress  in  the  trading  community; 
this  would  not  be  necessary  in  an  equal  degree,  could  their  stock  of 
specie  be  replenished,  in  some  measure  at  least,  out  of  the  ordinary 
circulation.  The  limiting  the  circulation  of  bank  notes  to  those  of  a 
denomination  of  five  dollars  and  upwards,  would  bring  a  great 
amount  of  silver  into  circulation.  It  has  been  adopted  in  some  of 
the  States,  with  great  public  satisfaction.  The  objection  to  it  in  Mas 
sachusetts  will  be,  that  bv  reducing  the  amount  of  bank  circulation, 


54 

it  will  reduce  the  profits  of  banking,  and,  of  course,  the  revenue  de 
rived  from  banking.  This  objection  will  apply  with  quite  as  much 
force  under  the  present  system,  as  under  the  one  proposed,  since  the 
inducements  to  a  reduction  of  bank  capital,  under  the  present  tax, 
will  be  increased,  as  the  profits  of  bank  circulation  are  diminished. 
This  consideration  may  probably  prevent  the  immediate  adoption  of 
a  measure,  the  advantages  of  which  are  indirect  and  intangible,  and 
which  will  require  the  sacrifice  of  a  benefit  which  is  direct  and  palpa 
ble.  It  would,  however,  be  very  unwise  to  put  it  out  of  the  power 
of  a  future  legislature  to  adopt  the  measure,  should  the  experience  of 
other  States,  and  a  further  examination  of  the  subject  make  it  desir 
able. 


55 


LETTERS    ON   THE   MONEY   CRISIS   OF   1857. 


BOSTON,  OCTOBER  1,  1857. 

My  Dear  Sir : — It  is  many  years  since  I  had  a  correspondence 
with  you  on  the  subject  of  the  financial  state  of  the  country,  but  it 
appears  to  me  that  the  time  has  arrived  which  demands  deep  consid 
eration  and  wise  action. 

New  York  is  the  head-quarters,  and  has  a  great  responsibility  in 
this  matter  so  intimately  connected  with  the  prosperity  of  the  whole 
country.  Her  banks  are  now  evidently  in  a  state  of  great  strength, 
whilst  the  commercial  community  are  severely  pressed  and  brimful  of 
fear.  In  this  state  of  things,  it  appears  to  me  that  the  duty  and 
interest  of  the  New  York  banks  require  at  once  a  liberal  increase  of 
their  discounts. 

There  can  be  no  risk  in  it.  No  specie  can  be  carried  out  of  the 
city,  because  there  is  no  place  where  it  is  more  valuable.  Boston  can 
and  will  follow  the  suit  of  New  York,  and  things  might,  in  these  two 
cities,  soon  resume  their  usual  and  natural  course,  and  put  an  end  to 
the  cry  of  the  merchants  for  suspension. 

I  should  hope  it  might  do  more,  and  bring  Philadelphia  to  her 
senses,  and  lead  her  to  retrace  her  steps  before  it  is  too  late. 

A  very  short  time  will  increase  our  specie  from  California  and 
probably  from  Europe.  I  see  nothing  to  prevent  the  country  from 
assuming  a  state  of  the  highest  prosperity  in  its  regular  trade,  if  the 
present  panic  can  be  allayed. 

Yours,  very  truly, 

NATHAN  APPLETON. 

JOHN  A.  STEVENS,  ESQ., 

President  Bank  of  Commerce,  N.  Y. 


56 


MR.  STE YENS' S    REPLY. 

BANK  OF  COMMERCE,  IN  NEW  YORK,) 
OCTOBER  2,  1857.          j 

My  Dear  Sir  : — I  fully  concur  in  your  views.  It  is  true  that  New 
York  has  a  great  responsibility ;  the  magnitude  is  oppressive,  has 
been  deeply  felt  and  carefully  weighed  for  a  long  time. 

Our  banks  are  prepared  and  now  ready,  and  will  soon  be  much 
stronger  for  the  wise  action  of  liberal  aid  to  the  community.  More 
coin  flows  into  the  city  from  all  quarters — from  Philadelphia,  from 
the  West,  and  is  already  on  its  way  from  Europe. 

A  California  steamer  is  due,  with  about  half  as  much  more  as  there 
is  in  all  Massachusetts.  Some  of  our  banks  have  scarcely  diminished 
their  loans  for  two  months,  notwithstanding  their  aid  to  neighboring 
cities.  The  large  banks  have  expanded,  and  will  continue  to  expand. 
On  the  system  of  discounting,  mainly  only  short  paper,  they  always 
have  money  to  loan. 

When  will  yours  confine  themselves  to  short  dates,  and  cease  to 
encourage  the  pernicious  system  of  long  credits — credits  ramified  to 
the  last  degree,  from  which  spring  most  of  your  difficulties  ?  Our 
corresponding  banks  in  Boston  are  advised  that  we  will  not  press 
them  for  their  balances. 

Very  faithfully  yours, 

JOHN  A.  STEVENS,  President. 
NATHAN  AFPLETON,  ESQ.,  Boston. 


MR.  APPLETON  TO  MR.  STEYENS. 

BOSTON,  OCTOBER  5,  1857. 

My  Dear  Sir : — I  have  yours  of  the  2d,  and  am  glad  to  find  that 
you  agree  with  me,  and  that  your  bank  is  expanding  its  discounts.  I 
regret,  however,  that  this  course  has  not  been  adopted  by  the  other 
banks,  as  the  last  official  return  (that  of  26th  ult.)  shows  an  aggregate 
reduction  instead  of  expansion  in  their  loans.  And  the  last  reports 
do  not  show  any  alleviation  in  the  stringency  of  the  money  market. 


57 

I  beg  you  Avill  use  your   influence  for  an  immediate  and  very  consid 
erable  expansion,  so   important   as   I   consider  it   for  the  interests  of 
New  York  and  the  Avhole  country.     1   notice  your  remarks  on   our 
banks  discounting  long  paper  as  encouraging  the  pernicious  system  of 
long  credits.     I   have  always  been   opposed   to  the  system  of  long 
credits,  but   I   recollect  very  well,  as   I  was   then  in  active  business, 
that  it  was  in  consequence  of  8   months  being  the  established  credit 
given  by  the  New  York  importers,  that  we  were  obliged  to  submit  to 
the  same  on  our  manufactures.     I  am  not  aware  that  the  credits  now 
given  in  New  York,  are  shorter  than  those  given  in  Boston.    A  good 
deal  of  improvement  has  been  going  on  here  within  the  last  few  years 
by  offering  large  discounts  for  short  time.     I  do  not  agree  with  you 
that  the  banks  should  confine  their  discounts  to  short  paper,  which,  if 
good  for  the  banks,  is  bad  for  the   community.     I  have  been  for  up 
wards  of  40  years  a  director  of  the  Boston  Bank,  during  the  greater 
part  of  which  time  they  have  confined  their  discounts  to  real  business 
paper,  which  should  be  paid   at   maturity,  and   have  not  refused  it 
even  when  having  6  months  to   run.     This  system  has  worked  well, 
and  always  gives  the  bank  enough  coming  in  to  meet  any  emergency. 
I  hardly  recollect  a  discount  day,  when  the  bank  has  not  been  able  to 
discount  some  new  paper.     What  I  call  a  really  pernicious  system  is 
that  of  making  loans  on  call,  which   seems  to  prevail  extensively  in 
New  York.     This  system,  especially  pernicious  to  borrowers,  I  hope 
is  not  adopted  by  your  bank.     I  should  think  a  bank  with  your  large 
capital  would  find  it  difficult  in  ordinary  times,  to  find  business  paper 
enough  at  short  dates  to  meet  their  wants,  and  might  frequently  find 
it  necessary  to  take  accommodation  paper  with  long  paper  perhaps  as 
collateral.     On  referring  to  the  published  tables,  I  see  that  the  banks 
of  New  York  have   lessened  their  liabilities  from  101  millions,  Aug. 
15.   to   81    millions,   Sept.  24,  certainly   a  most  violent  proceeding. 
The  Boston  banks  reduced  their  liabilities  from  23  millions,  Aug.  17, 
to  19  millions,  Sept.  28,  something  less  in  proportion.     Our  banks  are 
obliged  to  follow  the  course  of  New  York,  but  are  in  a  perfectly  easy 
position.     It  is  their  customers,  the  merchants,  who  feel  the  pressure. 

Very  truly,  your  obedient  servant, 

NATHAN  APPLETON. 
J.  A.  STEVKNS,  ESQ. 


58 


[For  the  I>oston  Daily  Advertiser.] 

THE  MONEY  CRISIS  AND  THE  NEW  YORK  BANKS. 

Messrs.  Editors  : — I  have  for  many  years  been  withdrawn  from 
active  business.  I  have  been  merely  a  looker-on,  but  not  unobserv 
ant  of  the  course  of  trade,  and  especially  of  our  banking  operations. 

Our  system  of  currency  is  a  delicate  one.  It  is  founded  on  bank 
credits,  resting  on  a  very  moderate  basis  of  coin.  "When  perfectly 
balanced,  it  works  very  well,  but  a  slight  derangement  may  produce 
a  great  deal  of  mischief.  The  great  disturbing  cause  is  a  demand  for 
specie  for  export,  which  can  only  be  checked  by  a  contraction  of  the 
bank  credits.  During  the  present  year,  we  have  been  going  on  very 
smoothly,  under  full  sail,  when,  about  the  middle  of  August,  a  sudden 
squall  strikes  us,  which  continues  to  increase  to  a  terrific  hurricane, 
threatening  even  to  swamp  the  ship  itself.  The  question  arises, — 
how  comes  all  this  about  ? — what  is  the  cause  ? 

New  York  is  the  great  central  banking  power.  She  sets  the  key 
note  to  the  whole  country.  If  she  expand,  the  whole  country 
expands.  If  she  contracts,  it  is  felt  to  the  remotest  extremities.  It 
is  a  tremendous  power — that  of  increasing  or  diminishing  the  circu 
lating  medium  of  the  whole  country.  It  is  a  deep  responsibility,  and 
demands  sound  discretion  and  much  wisdom  in  its  regulation.  Un 
fortunately,  there  appears  to  be  no  unity  of  action,  no  controlling 
principle,  in  the  management  of  this  power.  It  is  divided  between 
fifty-five  banks,  each  acting  its  own  separate  part,  under  the  influence 
of  different  opinions  and  different  interests.  There  is  apparently  no 
individual  of  sufficient  influence  to  bring  this  heterogeneous  mass  to 
unity  of  action  in  a  crisis  like  the  present,  as  was  Albert  Gallatin, 
whilst  he  lived.  Banks  are  public  institutions  ;  they  are  founded  for 
the  public  good  ;  and  the  duty  of  consulting  the  good  of  the  community 
in  the  use  of  their  great  power  is  as  sacred  as  that  of  providing  for 
their  own  safety. 

The  circulating  medium  of  the  city  of  New  York  consists  in  the 
liabilities  of  her  banks  in  the  form  of  deposits  and  circulation.  Their 
daily  loans  and  discounts  increase  or  diminish  these  liabilities.  As 
these  liabilities  are  greater  or  less,  is  money  plenty  or  scarce.  They 
constitute  the  fund  out  of  which  all  operations  must  be  performed. 

Hunt's  Merchants'  Magazine  contains  tables  of  the  weekly  returns 
of  the  banks  of  the  city  of  New  York  for  the  years  1856  and  1857, 
which  furnish  a  complete  view  of  their  operations.  They  throw  a 
flood  of  light  on  the  present  state  of  things.  The  return  for  Jan.  3, 


1857,  shows    104   millions   of  liabilities,  with   11,172,000    dollars   in 
specie. 

This  varied  very  little  from  the  returns  of  the  preceding  six 
months,  and  this  state  of  things  continued  with  little  change,  but  with 
a  slight  tendency  to  increased  expansion  up  to  the  loth  August. 
The  greatest  expansion  was  on  the  2d  of  May,  when  the  liabilities 
were  108  millions  with  12  millions  of  specie.  The  return  of  15th 
August  shows  101  millions  of  liabilities  and  11,300,000  of  specie. 
From  this  a  rapid  contraction  commenced,  the  liabilities  being  re 
duced  on  5th  September  to  88  millions  with  10,227,000  of  specie. 
Here  the  contraction  ought  to  have  ceased.  The  object  was  to  stop 
the  export  of  specie.  That  had  been  done.  Exchange  on  London 
rjad  fallen  below  the  point  at  'which  specie  could  be  shipped  without 
loss.  Can  any  mortal  man  give  a  reason  or  an  apology  why  con 
traction  should  continue  a  day  after  this  point  had  been  reached? 
The  banks  were  then  stronger  than  they  had  been  for  two  years. 
But  contraction  did  continue  until,  on  the  3d  October,  the  liabilities 
had  been  reduced  to  76  millions — thus  reducing  the  circulating 
medium  of  New  York  city,  from  July,  32  millions  or  upwards  of 
thirty  per  cent.  Tremendous  !  Was  the  like  ever  known  in  the 
history  of  banking  ?  I  have  no  hesitation  in  saying,  it  is  this  con 
tinued  contraction  of  the  New  York  banks  since  the  5th  of  Septem 
ber,  without  the  slightest  necessity,  which  has  brought  about  the 
present  disastrous  crisis. 

There  was  no  decided  general  overtrade.  There  was  no  specula 
tion,  except  by  a  few  houses  in  the  article  of  sugar.  There  was  no 
doubt  an  excess  of  imports,  but  no  greater  than  for  several  years,  and 
the  eti'ect  of  these  was  wholly  cured  on  the  5th  September,  by  the 
rate  of  exchange  on  London.  Why  continue  contraction  further  ? 
Was  not  88  millions  with  10£  millions  of  specie,  being  1H  per  cent, 
as  safe  a  proportion  as  104  millions  in  January,  with  11  millions  of 
specie,  or  11  per  cent,  on  their  liabilities. 

There  is  but  one  answer.  The  New  York  banks  have  been  act 
ing  under  a  panic,  and  that  panic  they  have  communicated  to  others, 
until  there  is  almost  a  total  loss  of  confidence.  The  consequences  are 
before  us,  in  the  paralysis  of  all  trade  from  Bangor  to  New  Orleans, 
the  stoppage  of  banks  through  a  great  part  of  the  United  States,  the 
stoppage  of  factories,  the  discharge  of  thousands  of  laborers,  the  ina 
bility  to  bring  our  large  crops  of  produce  to  market,  the  ruinous  rate 
of  two  or  three  per  cent,  per  month  on  the  strongest  paper,  a  ruinous 
depreciation  in  the  price  of  all  stocks,  and  even  on  exchange  on  Lon- 


don.  In  my  whole  experience  I  have  never  known  a  crisis  so  severe 
as  the  present,  and,  I  must  say,  so  wholly  uncalled  for. 

I  was  a  bank  director  in  1814,  when  New  York  and  all  the  States 
South  and  West  suspended  specie  payments.  Boston  had  ample 
means  and  stood  firm,  whilst  many  croakers  thought  it  madness  for 
Boston  to  hold  on,  when  all  the  rest  of  the  country  suspended.  She 
did  so,  however,  and  all  New  England  with  her,  and  thus  saved  them 
the  losses  which  accompanied  the  resumption  in  other  States  in  the 
terrible  revulsion  of  1819. 

In  1834  Mr.  Biddle  was  flagitiously  endeavoring  to  force  Congress 
to  grant  him  a  charter,  through  the  distress  he  had  it  in  his  power  to 
inflict  on  the  country.  In  March  of  that  year  a  committee  of  the 
merchants  and  bankers  of  New  York  informed  him  that  unless  he. 
changed  his  course,  and  would  agree  to  their  terms,  which  were  that 
the  United  States  Bank  should  cease  to  call  upon  the  other  banks  for 
its  balances  for  thirty  days,  his  course  would  be  denounced  at  the  ad 
journed  meeting  at  the  exchange. 

Mr.  Biddle,  at  the  last  moment,  agreed  to  their  terms,  in  conse 
quence  of  which  the  country  was  immediately  relieved.  But  Mr. 
Biddle  was  reckless  enough,  when  the  thirty  days  expired,  without 
the  slightest  necessity,  to  call  for  these  balances,  and  give  the  screw 
another  turn. 

This  produced  an  intense  and  unexpected  pressure,  for  it  was  the 
New  York  understanding  that  Mr.  Biddle  should  not  again  press 
them  without  some  show  of  necessity.  This  pressure  he  continued 
until  the  adjournment  of  Congress  in  July,  when  he  gave  up  the 
chase,  and  soon  after  extended  the  loans  of  the  bank  from  47  to  63 
millions. 

There  was  nothing  in  that  pressure  to  compare  in  severity  to  the 
present.  It  was  wholly  owing  to  the  unprincipled  action  of  Mr. 
Biddle. 

The  pressure  of  1837  was  wholly  unlike  the  present.  During  a 
period  of  great  overtrade,  a  few  London  houses  imprudently  created 
an  American  debt  of  fifty  or  sixty  millions  of  dollars,  by  giving  out 
their  acceptances,  to  be  met  by  other  equally  fictitious  bills  as  they 
fell  due.  These  houses  fell  into  discredit,  and  informed  their  corres 
pondents  in  America  that  the  whole  debt  must  be  liquidated  at  once, 
or  they  must  become  bankrupt.  This  was  in  March,  when  no  remittan 
ces  could  be  made  except  in  specie,  which  the  banks  were  called  on  to 
furnish.  The  New  York  banks  went  on  for  something  over  a  month, 
when  they  found  it  impossible  to  continue.  They  then  suspended, 


and  with  tlicm  the  whole  country.     There  is  nothing   like' it  now,  as 
there  is  no  foreign  demand  for  specie. 

The  question  now  arises,  What  is  the  remedy  ? — what  is  to  be 
done  ?  Nothing  can  be  plainer.  The  New  York  banks  must  retrace 
their  steps,  and  speedily,  or  it  will  be  too  late.  They  should  at  once 
increase  the  circulating  medium  by  expanding  their  discounts  ten  or 
fifteen  millions  of  dollars.  No  other  course  Avill  set  the  wheels  in 
motion. 


NATHAN  APPLETON. 


Boston,  October  12,  1857. 


TABLE  OF  THE  BANKS  IN  THE  CITY  OF  NEW  YORK. 


1857. 

Specie. 

Liabilities,  consisting  of 
Deposits  and  Circulation. 

Proportion 
of  Specie. 

January  3, 

11,172,000 

104,000,000 

1  1  per  cent 

April       4, 

11,538,000 

106,000,000 

11 

H 

July         3, 

12,837,000 

108,000,000 

12 

ft 

August  15, 

11,360,000 

101,000,000 

11 

11 

22, 

10,197,000 

98,000,000 

10 

It 

29, 

9,201,000 

93,000,000 

10 

ll 

Sept'r      5, 

10,227,000 

88,000,000 

1H 

a 

12, 

12,181,000 

85,000,000 

14 

u 

«         19, 

13,556,000 

84,000,000 

16 

(l 

26, 

13,327,000 

81,000,000 

16i 

a 

October  3, 

11,400,000 

76,000,000 

15 

a 

"         10, 

11,476,000 

71,000,000 

16 

u 

Since  the  above  was  written,  we  have  the  returns  of  the  banks  of 
New  York  for  another  week,  showing  a  further  contraction  of  four 
millions.  The  further  persistence  in  a  wrong  course,  has  produced 
its  natural  result.  It  lias  frightened  the  community  until  the  banks 
are  driven  to  the  desperate  remedy  of  suspension. 

AFTER     SUSPENSION. 

Octoberl7,           7,843,000  61,000,000            13  percent. 

"         24,         10,411,000  64,000,000           16       " 

31,         12,883,000  68,000,000           19 

Nov'r       7,         16,492,000  75,000,000           22       " 

"         14,          19,451,000  79,000,000           24^     " 

The  circulation  varying  very  little  from  eight  millions,  the  in 
crease  or  diminution  of  discounts  is  shown  in  the  deposits. 


P.  S.  It  is  well  understood  that  the  actual  suspension  of  the  New 
York  banks  was  not  the  result  of  natural  causes,  but  arose  from  the 
disgust  and  indignation  of  the  merchants,  who  viewed  the  action  of  the 
banks  in  its  true  light,  and  were  determined  to  let  them  know  that 
driven  to  the  wall  and  crushed  as  they  were,  they  were  still  able  to 
retaliate  by  using  their  power.  This  was  acting  out  the  common 
principles  of  human  nature.  They  were  indignant  that  the  banks, 
after  providing  for  their  owir  safety  and  being  relatively  stronger 
than  they  had  been  for  two  years,  should  continue  the  violent  system 
of  contraction  which  was  prostrating  solvent  houses  in  every  direc 
tion.  It  was  a  narrow  selfish  policy,  without  reference  to  their  high 
duty  as  guardians  of  the  currency  of  the  country. 

It  is  difficult  to  say  where  the  responsibility  lies  for  this  lamentable 
mistake.  It  is  impossible  to  consider  the  aggregate  of  the  banks  other 
than  a  unit,  although  it  is  well  known  that  many  of  the  oldest  and 
most  respectable  of  the  bank  directors  deprecate  the  course  of  contin 
ued  contraction.  Doubtless  the  directors  of  the  strongest  and  most 
powerful  of  the  banks  must  by  their  own  action  have  controlled  the 
action  of  the  whole.  It  is  impossible,  on  a  full  review  of  the  subject, 
to  aquit  the  leaders,  whoever  they  were,  of  a  ruinous  failure  in  the 
performance  of  their  duty. 

Our  delicately -balanced  system  of  circulation  and  credit,  instead  of 
being  regulated  with  judgment  and  discretion,  has  been  shattered 
and  overthrown  by  unskilful  hands.  The  whole  thing  has  been  a 
mistake  and  a  blunder,  preposterously  continued.  On  the  5th  Sep 
tember  the  banks  were  perfectly  safe,  trade  was  expanded,  but  not  in 
excess,  and  all  was  well.  The  banks  had  only  to  stand  as  they  were 
and  we  should  have  had  no  bank  suspensions  whatever.  Even  Phil 
adelphia,  with  her  suspensive  proclivities,  imbibed  from  Mr.  Biddle, 
would  have  left  the  rotten  Bank  of  Pennsylvania  to  her  fate.  With 
the  New  York  banks  there  was  no  just  cause  for  suspension.  We 
have  seen  that  it  was  not  the  result  of  their  weakness,  but  of  their 
strength  which  they  refused  to  use. 

The  only  plea  brought  forward  in  justification  of  the  course  of  the 
New  York  banks,  consists  in  endowing  them  with  the  gift  of  fore 
seeing  events,  in  taking  effects  for  causes.  Can  banks  avoid  contract 
ing  during  a  severe  money  pressure?  during  a  panic  ?  when  failures 
were  impending?  when  there  was  a  tendency  to  hoarding?  with 
country  banks  calling  for  specie  ?  All  these  were  simply  the  natural 
effects  of  the  violent  continued  contraction,  but  in  no  sense  a  cause 
for  it. 


63 

The  banks  were  making  a  new  experiment  in  banking,  they  seemed 
disposed  to  try  how  far  a  contraction  of  the  circulation  could  be  car 
ried,  without  regard  to  consequences.  It  has  readied  forty  per  cent. 
It  lias  not  only  paralyzed  all  action  in  this  country,  it  has  even  dis 
turbed  the  currency  of  Knglaud  and  France.  Even  now,  with  more 
specie  than  ever  before,  with  double  the  average,  they  neither  resume 
nor  expand.  They  should  do  both. 

N.  A. 

Boston,  Nov.  20,  1857. 


U.C.  BERKELEY  LIBRARIES 


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